The Federal Reserve's preferred inflation gauge showed prices remained sticky in July, reinforcing division within the central bank over whether to raise interest rates as policymakers gather this week for their annual economic symposium in Jackson Hole, Wyoming.
The Personal Consumption Expenditures (PCE) index rose 3.3% in July on a "core" basis, which excludes volatile food and energy prices. That matched expectations and held at the same level as June. Month over month, prices rose 0.2%, also in line with expectations and up from 0.1% in June.
New York Fed president John Williams has said that if monthly PCE inflation comes in at 0.2% or lower, that would indicate inflation is returning to the Fed's 2% target on its own, implying the Fed would not need to raise rates.
Boston Fed president Susan Collins said Tuesday she was content to hold rates steady at the last meeting, but would need evidence that inflation is dropping to continue doing so. Absent that, she said it would be appropriate to raise rates "soon" to bring inflation back down within a reasonable time frame.
Economist views
- Ariane Curtis, senior economist at Capital Economics, said the July reading won't be enough to push the Fed to hike rates in September, but called a rate increase "a matter of when — not if," forecasting a quarter percentage point hike in December followed by another early next year.
- Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said July's data likely won't shift the balance for September's FOMC meeting, but added that "if subsequent data point in the same direction, the Fed may feel more pressure to move off the sidelines."
The inflation data arrives just before the Fed's Jackson Hole gathering, where officials remain divided on interest rate policy. Fed Chairman Kevin Warsh will deliver his first speech as the newly installed head of the central bank on Friday; analysts expect him to avoid hints about the September meeting and instead offer a broader speech.
While core PCE was reassuring for July, energy prices remain elevated amid the ongoing conflict in the Middle East, a factor Collins said she is closely watching. President Trump has also renewed a trade dispute with Canada, with both sides planning fresh tariffs in September, raising the risk that inflation could rise again or stay elevated.
Source: Yahoo Finance
