Fed Hawks Gain Strength as Energy Prices Take Center Stage

The Federal Reserve's decision to hold interest rates steady at its latest meeting is not a signal that inflation has been tamed, according to Fed Chair Kevin Warsh. While headline personal consumption expenditures (PCE) inflation slowed to 3.7% in June from 4.1% in May, and core PCE eased to 3.3%, these numbers are heavily influenced by lower energy prices.

A single category - gasoline spending - exerted a massive downward pressure on overall inflation, with Americans spending $48.1 billion less on fuel at seasonally adjusted annual rates during June.

However, tensions involving the U.S. and Iran have escalated again, crude oil has moved back above $90 per barrel, and gasoline prices are above $4 a gallon. This could mean that July's inflation report will look very different, with higher energy costs potentially feeding back into inflation before September.