Topline
An inflation measurement favored by the Federal Reserve matched Wall Street’s expectations according to federal data released Friday, complicating hopes for the central bank to lower interest rates next month.
Annual inflation was 2.9% in July and a 0.1% uptick from June, according to core personal consumption expenditures (PCE) price index data released Friday by the Bureau of Economic Analysis, matching consensus analyst forecasts, according to FactSet.
The reading remained above the Fed’s 2% target for core PCE inflation, the central bank’s preferred gauge of price changes that excludes food and energy markets, for the 53rd consecutive month.
Headline PCE inflation was 2.6%, matching June’s price increases and matching projections.
Friday’s PCE report is the last before the Fed’s policy committee meeting in September. Investors are anticipating interest rates, which have been held between 4.25% and 4.5% since December, to be lowered during the September session after Fed Chair Jerome Powell signaled the agency would likely ease its monetary policy earlier this month. The Fed operates on a policy of setting rates to keep inflation and unemployment low, yet Powell warned earlier this year the impact of tariffs on the economy has yet to be seen and could raise prices. Powell noted the “balance of risks [appears] to be shifting” between unemployment and inflation, citing “sweeping changes” in trade, immigration and tax policy under the Trump administration.
85.3%. Those are the odds the Fed eases interest rates by at least a quarter-point in September, according to CME’s FedWatch. Investors traded at odds as high as 99.9% earlier this month after earlier inflation data indicated prices increased more slowly than expected.
The central bank favors core PCE data more than inflation readings released by the Bureau of Labor Statistics because it allows the Fed to better understand how Americans spend their money and how their spending habits change. President Donald Trump has pressured the Fed to cut interest rates and called on Powell to resign, claiming Powell has been “too late” to opt for a looser monetary policy. Fed governors Michelle Bowman and Christopher Waller have argued for a quarter-point reduction and dissented with a decision to hold rates at the Fed’s last meeting in June. Some economists have warned Trump’s tariffs on U.S. trade partners will raise prices for Americans this year: UBS analysts forecast CPI inflation hitting 3.9% by December, while Bank of America projected core PCE inflation rising to 3.1%. Avery Shenfeld, chief economist at CIBC World Markets, wrote in a note earlier this week that “if it weren’t for all the politics,” inflation remaining above the Fed’s 2% goal is “not exactly crying out for a rate cut in September.”