US Inflation Holds Steady in July Amid Rate Hike Speculation
US inflation remains stubbornly high in July, sticking above the Federal Reserve's target of 2% for the 65th straight month. The Personal Consumption Expenditures Price Index (PCE) increased by 3.7% in the 12 months through July, unchanged from June. This reading was higher than economists' forecasted 3.6%, and also beat expectations for a 0.1% increase in the month-over-month figure, which came in at 0.2%. The core PCE, excluding energy and food prices, held steady at 3.3% on the year while rising to 0.2% on the month from 0.1% in June.
The above-forecast headline print boosted expectations that the Fed may raise interest rates as soon as next month, with Fed funds futures prices reflecting a 42% probability of a rate hike at the central bank's September 15-16 meeting. This is data that supports a hike, said Omair Sharif, founder and president of forecasting firm Inflation Insights.
The slowdown in inflation in the last two months has helped buoy the arguments of the majority of Fed policy committee members who voted to leave the central bank's benchmark interest rate unchanged in the 3.50%-3.75% range. However, a growing minority of Fed officials argue that tighter policy is needed, given that inflation has been above target since February 2021 and will not get to the 2% level without further restraint.