Fed's Inflation Problem Grows as US Economy Shows Signs of Strain

The US Federal Reserve's preferred inflation measure, Core PCE, has been above its 2% target for over five years. The latest update shows a year-on-year increase of +3.3%, unchanged from last month but significantly higher than April last year.

This is not the only worrying sign - Core CPI came in at +2.5% last month, and Producer Price Index (PPI) rose to +4.2% in July. This could indicate that producers are passing on their increased costs to consumers or eating them themselves, which would have a negative effect on margins.

Despite these concerns, the Fed has not yet taken action to raise interest rates. However, with three FOMC members voting for a 25 basis point rate hike at the last meeting in July due to rising inflationary pressures, there is growing pressure on the central bank to take action.