Inflation Stays Sticky as Rate Hike Bets Rise Amid Slowing US Growth
Nvidia's strong earnings report has left investors feeling optimistic, but the latest US inflation data may keep the Federal Reserve on track for rate hikes. The July PCE (Personal Consumption Expenditures) inflation data showed a slight increase in both monthly and yearly headline inflation rates, coming in at 0.2% and 3.7%, respectively.
While core readings matched consensus estimates at 0.2% and 3.3%, the overall picture remains concerning for the Fed, as inflation has been above its 2% target for five years. The situation is further complicated by stalling growth in the US, with Q2 GDP remaining unchanged at 1.5%, below the pace seen this time last year.
The Fed faces a delicate balance between slowing growth and elevated price pressures, making it difficult to ease policy without exacerbating inflation. As a result, markets have modestly increased their hawkish bets on rate hikes, with implied increases of 9 basis points for September, 16 basis points for October, and 22 basis points by year-end.