The inflation report was more dovish than expected, particularly because of the sizeable downward revisions to July core PCE. The revisions suggest underlying inflation is likely to undershoot the FOMC’s 2026 forecast, prompting a lower expectation for full-year core PCE. Combined with John Williams’ comments that there is no need for urgency following the September meeting, the outlook for further rate hikes has shifted materially: an October hike now appears unlikely, with the next potential hike pushed to December and a growing possibility that the FOMC ultimately decides further tightening is unnecessary.The growth data remained relatively firm, with upward revisions to Q1 and Q2 GDP largely reflecting stronger consumption and investment. However, the underlying commentary remains more cautious on the consumer, as the boost from larger tax refunds is expected to fade while higher energy prices create an additional headwind. The latest income and spending data were somewhat stronger than previously assumed, but this does not fundamentally alter expectations for slower consumer spending later in the year.Trade data provided a drag on the growth outlook through stronger-than-expected imports, although this was partly offset by much stronger inventory accumulation. As a result, the Q3 GDP tracking estimate was only modestly reduced. Employment data also remained reasonably solid, with ADP showing continued private-sector job growth and wage growth broadly stable. Overall, the report points to softer underlying inflation alongside still-resilient growth, reducing the immediate case for further monetary tightening.