Inflation Holds Steady Amid Strong Economic Growth

US inflation remained above target for the 65th consecutive month in July, holding steady at 3.7% year-over-year. This has sparked debate among Fed officials about whether to raise interest rates or keep them steady.

The unexpected pause in the decline of inflation from its recent peak is likely to intensify this discussion. Consumer spending decelerated modestly last month and flatlined against inflation, but personal incomes rose faster than inflation, which could lead to increased consumption as the year progresses.

Orders for major capital goods rebounded in July, led by transportation equipment orders, while shipments of durable goods outside defense and aerospace sectors continued to show brisk business investment in artificial intelligence. Corporate profits rose at their second-fastest pace on record in the second quarter, pointing to an acceleration in overall economic growth in the third quarter.

Economists expect GDP growth to reach 3% or higher in Q3, double the rate of the previous quarter. This has raised expectations that the Fed may raise interest rates as soon as next month.