The Cleveland Fed's Inflation Nowcasting tool expects both PCE and Core PCE to keep climbing through November. The Motley Fool argues that tariffs, the Iran war and AI-driven hardware demand are pushing prices up, and says a more aggressive Fed response could tip the S&P 500 and other indices over the edge.
The Cleveland Fed's Inflation Nowcasting tool expects the PCE Price Index to rise to 3.77% in October and 3.82% in November, according to The Motley Fool. The PCE gauge rose from a reported 3.4% in August to 3.6% in September.
Fed Chair Kevin Warsh has been adamant that the central bank will get annualized PCE back to 2%, the article says. Core PCE, which excludes volatile food and energy costs, moved from 3% in August to a reported 3.1% in September. The tool now expects it to reach 3.2% in October and 3.31% in November.
Tariffs and the Iran war keep pushing prices up
The author attributes the persistent inflation to two policies of President Donald Trump: tariffs and the Iran war. Three New York Fed economists wrote that the president's 2025 tariffs increased goods price inflation by an estimated 2.9 percentage points by February 2026.
Meanwhile, the author says the closure of the Strait of Hormuz, tied to the Iran war, created the largest energy supply disruption in modern history. Diesel prices reached an all-time high in September, and costs from rerouting shipments and changing suppliers have reached the broader economy.
AI hardware demand adds to the pressure
The AI infrastructure build-out is also lifting prices, the article argues. Demand for AI hardware and ongoing supply shortages of graphics processing units and memory solutions have driven up prices for these goods throughout the supply chain.
Data from the U.S. Bureau of Labor Statistics and the St. Louis Federal Reserve show the Import Price Index for Computer and Electronic Products reached its highest level since December 2013 as of September 2026.
A Fed dilemma for the stock market
The author says this puts the central bank in a quandary. If policymakers do nothing, the AI data center build-out will likely push consumer prices even higher. If Warsh and the FOMC tackle inflation head-on with a more aggressive rate hike path, the article says they could hurt a historically pricey stock market.
If borrowing costs climb and the AI build-out slows, even slightly, it may be enough to tip the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, the author writes.
Source: The Motley Fool
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