US PCE inflation holds at 3.7% in July, above Fed target
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US inflation held at 3.7% in July, above the Federal Reserve's 2% target for a 65th straight month. The core PCE index, excluding food and energy, stayed at 3.3% annually. Fed funds futures now imply a 42% chance of a rate hike at the September 15-16 meeting.
Key Facts
- The PCE Price Index rose 3.7% in the 12 months through July, unchanged from June, the Bureau of Economic Analysis reported.
- Core PCE, excluding food and energy, held at 3.3% year-over-year and rose 0.2% month-over-month.
- Fed funds futures priced a 42% probability of a rate hike at the September 15-16 meeting, up from 36% before the report.
- Inflation-adjusted incomes rose just 0.2% from a year earlier after several months of declines.
- Average national gasoline prices rose to $4.10 per gallon, according to AAA.
Inflation Data
The Personal Consumption Expenditures Price Index rose 3.7% in the 12 months through July, unchanged from June, the Bureau of Economic Analysis said on Wednesday. Economists polled by Reuters had forecast a 3.6% annual increase. Month-over-month, the index rose 0.2% after falling 0.1% in June, the weakest reading since April 2020. Core PCE, excluding food and energy, held at 3.3% year-over-year and rose 0.2% on the month from 0.1% in June.
Rate Hike Expectations
Wednesday's data boosted expectations that the Federal Reserve may raise interest rates as soon as next month. Fed funds futures prices reflected about a 42% probability of a rate hike at the central bank's September 15-16 meeting, up from about 36% immediately before the report. "This is data that supports a hike," said Omair Sharif, founder and president of Inflation Insights.
War and Tariffs Impact
Inflation has worsened since the US and Israel attacked Iran in late February, when it stood at 2.9%. The annual PCE shot to a three-year high of 4.1% in May as the conflict closed off roughly a fifth of global oil supplies. Consumer sentiment surveys showed most US consumers remain gloomy about the economy and their finances. Inflation-adjusted incomes rose just 0.2% from a year earlier after several months of declines. Average national gasoline prices rose to $4.10 per gallon, according to the American Automobile Association.
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US PCE inflation holds at 3.7% in July, above Fed target
