PCE Holds Steady at 3.7%, Real Spending Stalls Amid Rising Rate Hike Odds

The Federal Reserve's preferred inflation gauge, Personal Consumption Expenditures (PCE), remained at 3.7% year over year in July, matching June's annual pace exactly.

Core PCE, which strips out volatile food and energy prices, rose 0.2% month over month and 3.3% year over year, still more than a full percentage point above the Fed's 2% long-run target.

Real consumer spending, adjusted for inflation, rose just $1.3 billion in July, a gain of less than 0.1%, marking a sharp deceleration from June's inflation-adjusted gain of 0.4%. Households are buying almost exactly the same amount of real goods and services in July as they did in June.

The spending figure was worse than expected, with nominal spending rising $36.3 billion, driven by an increase in services outlays, but once adjusted for inflation, real purchasing activity was essentially flat.