U.S. consumer spending rose 0.2% month-on-month in July, exceeding expectations of a 0.1% gain, as the Commerce Department reported on Wednesday. Personal consumption expenditures, a key driver of the U.S. economy, have now expanded for a second consecutive month after a 0.3% increase in June.
The broader economic backdrop remains constrained by geopolitical tensions, particularly the Iran conflict that flared in late February and contributed to a slowdown in first-quarter growth. Gross domestic product expanded at an annualized 1.5% in the second quarter, down from 2.1% in the first three months of the year.
Inflationary pressures continue to weigh on household budgets. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, held steady at 3.7% in July, matching June’s reading and defying forecasts for a decline to 3.6%. The persistent inflation remains well above the Fed’s 2% target, reinforcing concerns over the durability of disinflationary trends.
Economists warn that inflation risks remain unabated. Bastian Hepperle, economist at Bank Bethmann HAL, described the disinflation process as "sticky," noting that progress toward the Fed’s goal has been "as slow as chewing gum."
Investors are closely watching the Federal Reserve’s annual symposium in Jackson Hole, which begins on Thursday. Fed Chair Kevin Warsh is scheduled to deliver a keynote address on Friday, with market participants scrutinizing his remarks for signals on the central bank’s policy trajectory. Warsh has yet to clarify whether his speech will focus on monetary policy or broader economic themes, but analysts anticipate limited guidance on the near-term interest rate outlook.
Hepperle added that for Warsh, achieving the inflation target is paramount, but the Fed chair has shown reluctance to provide explicit forward guidance on rates. "His hesitation on the rate path continues," Hepperle said. "For the Fed, that means staying on standby while avoiding rate hikes whenever possible."
