Inflation Remains Above Target as Fed Weighs Rate Hikes

US inflation remained stubbornly high in July, holding steady at 3.7% above the Federal Reserve's target of 2%. This marks the 65th consecutive month that inflation has been above the central bank's goal.

The Personal Consumption Expenditures Price Index (PCE) was unchanged from June, contrary to economists' forecasts of a reading of 3.6%. PCE had surged to a three-year high of 4.1% in May after President Donald Trump launched air strikes against Iran in February, sending energy prices skyrocketing.

The conflict has yet to be resolved, and its impact on inflation is still being felt. However, the slowdown in price increases over the past two months may bolster the arguments of Federal Open Market Committee members who voted to keep interest rates unchanged in July.

A growing minority of officials, however, argue that tighter policy is needed to curb inflation, which has been above target since February 2021 and shows no signs of returning to 2% without further restraint. New trade tensions between the US and Canada may also put upward pressure on prices, with tariffs on $20 billion worth of Canadian goods set to take effect.