The Federal Reserve’s preferred inflation measure showed consumer prices continued to rise in July, keeping pressure on policymakers as they debate their next interest rate decision.
The personal consumption expenditures price index rose a seasonally adjusted 0.2% for the month, placing the annual inflation rate at 3.7%, according to a Commerce Department report.
Both the monthly and annual headline figures came in 0.1 percentage point above the Dow Jones consensus estimate, signaling slightly hotter inflation than markets had anticipated.
Core PCE, which strips out volatile food and energy costs, posted gains of 0.2% for the month and 3.3% annually, landing in line with forecasts and offering some reassurance to markets.
Fed policymakers generally regard core inflation as a more reliable indicator of longer-term price trends, even as they monitor both headline and core measures closely.
Personal income rose 0.4% during the month while spending increased 0.2%, with both figures coming in stronger than analysts had expected.
Goods prices actually declined 0.1% on the month, driven by a 2.7% drop in gasoline and other energy-related goods and a 0.9% decrease in furnishings and durable household equipment.
Services prices climbed 0.3%, pushed higher by a 1.2% increase in financial services and insurance, along with a 0.3% gain in housing costs.
Stock market futures pulled back modestly following the report’s release, while Treasury yields moved higher in immediate reaction to the data.
The rate-setting Federal Open Market Committee does not hold a formal meeting in August, giving officials a brief pause before gathering again on September 15 and 16.
Markets are currently pricing in only about a one-in-three probability of a rate move at that September meeting, with December seen as the most likely window for a potential hike.
Fed officials are convening this week at Jackson Hole, Wyoming, for their annual symposium, with the highlight being a policy speech from Chairman Kevin Warsh scheduled for Friday.
Warsh, who took office in May, has been circumspect about signaling the direction of monetary policy, preferring instead to allow markets to set the tone.
Government bond yields have been rising sharply, with both the 10-year and 30-year Treasury yields recently hitting their highest levels since 2007, just before the global financial crisis.
The surge in yields reflects investor concerns about the Fed’s commitment to its 2% inflation target, as well as growing unease over federal debt and deficit levels.
Treasury Secretary Scott Bessent announced last week an initiative to increase the government’s buybacks of federal debt, though market participants have expressed doubt about whether the move will meaningfully move yields lower.
