The US Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, rose 0.2% month-over-month and 3.7% year-over-year in July, both figures coming in above market expectations of 0.1% and 3.6%, respectively [1][2][4][5]. The core PCE Price Index, which excludes food and energy, increased 0.2% monthly and 3.3% annually, matching forecasts and remaining unchanged from June [1][2][4][5]. Goods prices declined 0.1% in July, driven by a 2.7% drop in gasoline and energy-related goods and a 0.9% decrease in furnishings and durable household equipment, while services prices rose 0.3%, led by a 1.2% increase in financial services and insurance and a 0.3% gain in housing [4][5]. Personal income rose 0.4% in July, above the 0.3% forecast, and personal spending increased 0.2%, in line with expectations but slower than June's 0.3% [2][5].
Despite the slightly hotter headline inflation, market expectations for the Federal Reserve's September policy meeting remain largely unchanged. The CME FedWatch Tool shows a roughly 36% chance of a rate hike, with about 64% probability that rates will stay unchanged [1][2][5]. Stock market futures pulled back and Treasury yields rose following the report, with both the 10- and 30-year Treasury yields recently reaching their highest levels since 2007 [5]. The US Dollar gained modestly against major currencies, particularly the New Zealand Dollar, while the Euro came under pressure against the Dollar after the PCE release [2]. Gold (XAU/USD) slipped 0.83% to around $4,620, as persistent inflation could support elevated US interest rates, but the report was not strong enough to significantly alter monetary policy expectations [1].
Fed officials are set to gather at the Jackson Hole Economic Policy Symposium this week, with Chairman Kevin Warsh scheduled to deliver a closely watched policy speech on Friday [1][5]. Market participants will be looking for signals regarding the Fed's policy outlook ahead of the September meeting, as inflation remains above the central bank's 2% target [1][5]. Treasury Secretary Scott Bessent recently announced increased buybacks of government debt, but market participants remain skeptical about the impact on yields [2][5].
According to Fox Business, goods prices were 1.3% higher than a year ago in July, while services prices were up 2.5% year-over-year [4]. The report follows moderate July CPI and PPI figures, reinforcing the view that the Fed may keep rates unchanged in September [2].
CONCLUSION
July's PCE inflation report showed price growth remaining above the Fed's target, but core inflation was in line with expectations. Despite a modest market reaction, including higher Treasury yields and a pullback in stock futures, investors continue to expect the Fed to hold rates steady in September. Attention now turns to the Jackson Hole symposium for further policy signals.