Key inflation data may shape Fed rate path, consumer confidence

NEW YORK (NewsNation) — A key inflation report due Friday could directly impact Americans' wallets, as growing consumer anxiety adds pressure.

Following this week's revised GDP, which showed the most substantial quarterly growth in nearly two years, economists are now turning to the Bureau of Economic Analysis' personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge.

The report is expected to show consumer prices up 2.7% year-over-year in August, up from a 2.6% annual increase in July, and core inflation rising 2.9% — still above the Fed's 2% target and moving in the wrong direction. A lot of the upward pressure on prices is attributable to tariffs.

A better-than-expected reading could send markets higher, while a larger rise in inflation could further the pullback, as seen this week, making the Fed reluctant to make another rate cut in October.

Markets closed lower again on Thursday.

Consumer anxiety on the rise

Friday's PCE data could have an impact on consumer sentiment, which has been growing increasingly concerning by the month.

Data shows economic anxiety has grown among lower-income Americans over the past year, and now middle-income Americans are beginning to worry.

In June, data began to show that middle-class Americans were signaling negative and concerning views on the economy, as reflected in their confidence readings. That trend has continued to decline sharply each month.

If Friday's PCE report comes in hotter than expected, it could further shake consumer confidence. A cooler number could provide some relief.

Middle-income and lower-income families are more dependent on the job market, which has weakened since early summer. Economists attribute this to a combination of factors, including inflation and tariffs.

Top earners fueling spending

Despite broader concerns, higher-income households are outspending everyone else.

Higher-income households have more assets, and most asset categories have performed well over the past year — including stocks, the housing market and even the price of gold.

Thursday's GDP data showed consumer spending is up, which is typically a positive sign for the economy. However, the top 10% of earners account for 49% of all consumer spending, indicating that a two-tiered economy is currently in place.

It gives credence to the notion that part of the country is in a "silent recession," while the other part is better able to weather "the short-term pain for the long-term gain."