The U.S. Federal Reserve's preferred inflation measure held steady last month, offering little urgency for an imminent rate hike.
The core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose 0.2% on the month in July, matching the prior month's increase and economists' forecasts. On an annual basis, core PCE held at 3.3%, unchanged from June and in line with projections, remaining above the Fed's 2% target.
The broader PCE index, which includes all components, increased 0.2% on the month after a 0.1% decline in June. On an annual basis, the overall PCE rose 3.7%, unchanged from the prior month and slightly above the 3.6% forecast by economists.
Energy prices remained a key driver of inflation pressures, supported by ongoing geopolitical risks in the Middle East. Benchmark oil prices dipped below $90 per barrel during the reporting week, as markets anticipated potential diplomatic progress to reopen maritime traffic in the Strait of Hormuz.
Personal income growth accelerated to 0.4% in July from 0.2% in June, exceeding expectations. Meanwhile, personal spending growth slowed to 0.2% from 0.3% in June, though it still outpaced the 0.1% forecast.
The U.S. economy expanded at an annualized pace of 1.5% in the second quarter, according to a revised estimate from the Department of Commerce. Growth was supported by resilient consumer spending and substantial investments in artificial intelligence infrastructure.
Market pricing suggests a roughly 60% probability that the Federal Reserve will maintain its benchmark interest rate in the 3.5% to 3.75% range at its next meeting, with a 40% chance of a 25-basis-point hike, according to CME FedWatch data. Three officials on the Federal Open Market Committee advocated for a rate increase at the prior meeting.
Fed Chair Kevin Warsh is scheduled to deliver a keynote address at the central bank's Jackson Hole symposium later this week, where investors will scrutinize signals on the policy path ahead.
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, noted that while several PCE components came in below expectations, the stability in the annual core measure provides the Fed with additional time to hold rates steady. He added that while dissenting voices on the FOMC may grow, enough policymakers are likely to prefer waiting for more data before deciding on a rate hike next month.
