Slow US Inflation Progress Leaves Rate Hike on the Table

The US inflation rate has shown slow progress towards the Federal Reserve's target of 2%, leaving the possibility of a rate hike this year in play. The July core PCE deflator, the Fed's preferred measure of inflation, came in at 0.2% month-over-month and 3.3% year-over-year.

The headline inflation rate was slightly firmer than anticipated, but still within expected ranges. Economists generally favor an extended pause for policy rates, while markets continue to price a 25 basis point rate hike before the end of the year.

Real personal spending for July was flat, confirming a soft start to the quarter from the consumer. Despite real household disposable income doing well, rising 0.4% month-over-month, underlying consumer fundamentals remain under pressure.