The Core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s favored measure of inflation, recorded a 3.3% increase year-over-year for July. This figure marks a slight decrease from June’s 3.4%, yet remains above the central bank’s long-standing 2% target. The broader PCE price index showed a 3.7% rise for June, underscoring persistent inflationary pressures. The prolonged elevation above target levels suggests that the Federal Reserve may continue its hawkish stance on interest rates, impacting the likelihood of rate cuts in the upcoming Fed meetings.
Key Takeaways
- The Core PCE inflation indicator at 3.3% suggests continued inflationary pressures above the Fed’s 2% target.
- Market pricing implies a reduced probability of interest rate cuts in the near term, consistent with the Fed’s possible ongoing hawkish approach.
- Sub-market pricing for the October 2026 Fed meeting shows a slight decline in the likelihood of rate cuts, now at 55% YES from 57% the previous day.
What to Watch
Upcoming Federal Reserve meetings will be closely monitored for any indications of a shift in monetary policy. A decrease in inflation rates closer to the Fed’s target could increase the likelihood of rate cuts. Watch for any statements from Fed Chair Kevin Warsh or other officials that could suggest a change in policy direction. Additionally, the September FOMC Dot Plot will provide insights into future rate cut projections, potentially altering market expectations.
