A fresh reading on the Federal Reserve’s preferred inflation gauge released Wednesday showed prices cooled more than expected in August — and is likely to quell some of the urgency for another interest rate hike next month.

The Personal Consumption Expenditures (PCE) index rose 3.4% in August, less than expectations for 3.7% — a level held for much of the summer. Excluding volatile energy and food prices, core PCE rose 3%, beating expectations for a rise of 3.3% and marking a drop from 3.3% in July. Month over month, core PCE inched down a tenth of a percentage point to 0.2% from July and beat expectations of a 0.3% rise.

“Core price pressures are slightly less firm than feared and provide some support to our view that the Fed will pause in October,” said Stephen Brown, chief North America economist, for Capital Economics.

Read more: Stocks bounce as PCE inflation data comes in cool

Part of the reason for the cooler reading is that the Bureau of Economic Analysis updated its methodology for calculating specific components of the PCE price index, retroactive to 2021.

The BEA has changed how it calculates inflation across three categories: computer software, legal fees, and investment advice. Two of those categories — computer software and investment advice — have experienced sharp price increases over the past year, which some economists say have artificially increased the overall inflation number.

Capital Economics’ Brown said the price revisions reduced the annual inflation rates for both the affected components. Together, he estimated they took 0.3% off overall core inflation. The downward revisions to price growth in June and July mean that the three-month annualized core inflation rate is now running at precisely 2%.

Ahead of the report, New York Fed president John Williams poured cold water on the notion of an interest rate hike in October.

Speaking in Buffalo, N.Y., on Tuesday, Williams said about raising rates in September that he sees “no need for urgency,” and noted, “We have time to gather more information.”

“The accumulation of more data should provide greater clarity on the underlying trends in the economy and the associated risks to achieving our goals — and thereby the appropriate setting of monetary policy,” he said.

He sees one more rate hike “late this year” to support what he called a “timelier” return of inflation to 2%. Late this year, to many, implies a timeline of December rather than October, the Fed’s next meeting.

Markets now see a roughly 35% chance the Fed hikes at the end of October, according to CME Futures, down from 50% on Tuesday after Williams spoke and around 70% earlier this week.

Labor market bounce: US private sector added 90,000 jobs in September

Not all Fed officials may be convinced that the August reading is sufficient. Fed governor Michael Barr said Tuesday that he’s seen only two months of data consistent with 2% core PCE inflation over the past 20 months.

“I don’t yet see a clear trend toward a timely return to 2%,” Barr said, though Wednesday’s report would mark a third data point.

Barr said the combined effects of higher energy prices and AI have knocked the Fed off course from progress toward achieving its 2% inflation goal. He noted while the effects from tariffs have diminished, energy prices are still high and there’s uncertainty about when the Iran war’s effect on prices may be resolved.

At the same time, he noted the surge in investment and demand from the AI build-out is having a “measurable effect” on prices.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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