BEA Inflation Methodology Changes Threaten to Disrupt Fed Interest Rate Hikes
The US Bureau of Economic Analysis is updating its inflation measurement methodology, which will affect the Personal Consumption Expenditures price index (PCE). This metric is crucial for the Federal Reserve's interest rate decisions. The BEA will revise how it counts three components of consumer spending: portfolio management and investment advice services, legal services, and computer software and accessories.
The changes will roll out as part of the agency's annual GDP revisions on September 30, 2026, with effects retroactively applied to 2021. Goldman Sachs estimates the adjusted core PCE figure for May 2026 would be 3.2%, down from the currently reported 3.4%. JPMorgan is slightly less optimistic, pegging the revised number at 3.3%.
A headline PCE reading of 4.1% year-over-year as of June 25, 2026, remains well above the Fed's 2% target. The BEA's revisions are designed to more accurately capture how Americans spend money in 2026 versus 2021.