In July, the personal consumption expenditures (PCE) price index rose by 0.2%, leading to an annual inflation rate of 3.7%, which is slightly above analyst expectations. Core PCE, excluding food and energy, also increased by 0.2%, aligning with forecasts and reflecting a 3.3% annual rise.
This data is significant as the Federal Reserve typically prioritizes core inflation for assessing long-term trends. Additionally, personal income grew by 0.4% and spending by 0.2%, both surpassing expectations. Notably, goods prices fell by 0.1%, largely due to a 2.7% drop in gasoline prices, while services prices increased by 0.3%.
Following the report, stock market futures dipped, and Treasury yields rose, indicating market reactions to the inflation data. With the Federal Open Market Committee not meeting in August, the next policy decision is anticipated during their gathering on September 15-16, where markets currently predict a low probability of immediate rate changes, favoring a potential hike in December.
The recent rise in Treasury yields, reaching levels not seen since 2007, reflects investor concerns regarding the Fed's inflation targets and federal budget issues. Treasury Secretary Scott Bessent's announcement of increased government debt buybacks has not alleviated market skepticism about its effectiveness in lowering yields