The U.S. Federal Reserve's preferred inflation gauge showed limited movement in July, with the core Personal Consumption Expenditures (PCE) index steady at 3.3% year-on-year, matching economist expectations. The headline PCE index rose 0.2% month-on-month, accelerating from a 0.1% decline in June, and reached 3.7% on an annualized basis, exceeding forecasts of 3.6%.
Personal income increased by 0.4% in July, up from 0.2% in June, while personal spending growth cooled to 0.2% from 0.3% the prior month. The Commerce Department's Bureau of Economic Analysis reported the data on Wednesday.
The core PCE index, which excludes volatile food and energy prices, rose 0.2% month-on-month, matching the pace observed in June. This measure remains well above the Federal Reserve's 2% target, underscoring persistent inflationary pressures. The second-quarter GDP growth estimate was revised to an annualized 1.5%, supported by consumer spending and AI-related infrastructure investments.
Market pricing indicates a roughly 60% probability that the Fed will maintain its benchmark interest rate range of 3.5% to 3.75% at its September meeting, with a 40% chance of a quarter-point increase. Three Federal Open Market Committee (FOMC) policymakers advocated for a rate hike at the prior meeting.
Oil prices fell below $90 per barrel during the week amid diplomatic efforts to ease tensions in the Strait of Hormuz, though broader energy costs remain elevated due to geopolitical conflicts in the Middle East.
Analysts noted the stability in the year-on-year core PCE reading as a key factor for the Fed's decision-making. Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said the core PCE figure's consistency provides the central bank additional time to assess data before considering further rate adjustments. He added that while month-on-month readings have worsened, enough FOMC members may prefer to await more evidence before acting.
The data release coincides with an upcoming address by Fed Chair Kevin Warsh at the Jackson Hole symposium later this week, where further insights on monetary policy direction are expected.
