PCE Report Looms as Inflation Stays Hot

Inflation likely remained higher than the Federal Reserve’s target in July, according to a survey of economists. The widely watched report from the Bureau of Economic Analysis is expected to show that consumer prices, as measured by the Personal Consumption Expenditures (PCE) index, rose by 2.6% over the past year—the same rate as in June.

More notably, “core” inflation, which strips out volatile food and energy costs, is projected to have increased to 2.9% from 2.8% in June. This uptick is significant because the Fed uses this core measure to determine if inflation is on track to meet its 2% annual goal. For over four years, inflation has been above this target, and it is now once again moving in the wrong direction, largely due to widespread tariffs that are increasing prices for a variety of products.

This week’s PCE report is particularly important as it’s the last piece of key data Fed officials will see before their September 16-17 meeting, where they will decide on interest rates. While financial markets anticipate a rate cut, an elevated inflation reading could complicate this decision. A rate cut would typically stimulate the job market, which has recently slowed, but it could also reduce the downward pressure on inflation at a time when businesses are passing tariff costs on to consumers.

One economist noted that without the political pressure, the persistent inflation would be a clear signal that a rate cut in September is not warranted. The President has been openly pressuring the Fed to lower interest rates, adding a political layer to the central bank’s economic challenge.