US Economy Faces Sticky Inflation and Weakening Growth
The US Federal Reserve's preferred inflation measure, Core PCE, has been above its 2% target for over five years. The latest update shows a year-on-year rate of +3.3%, unchanged from last month but higher than the previous year. This trend is concerning, as it indicates sticky and rising inflation. In contrast, Core CPI came in at +2.5%, matching levels seen earlier this year.
Fed officials are worried about inflation, with three out of twelve FOMC members citing rising inflationary pressures as their reason for voting for a 25 basis point rate hike last month. However, the economy shows signs of weakness, including two consecutive weak Non-Farm Payroll reports and disappointing retail sales numbers.
US Treasury Secretary Scott Bessent has been trying to drive down the dollar, announcing that the Treasury would double its purchases of longer-dated government bonds. This move saw yields drop and the US dollar slump. Fed Chair Kevin Warsh will deliver a keynote speech at the Jackson Hole Economic Symposium on August 28th, where investors are hoping for guidance on interest rates.