Fed’s Preferred Inflation Meter Unchanged In July—Here’s Why Interest Rates Hikes Are Now More Likely — Forbes

RESOLVING THE LEDGER

Topline The Federal Reserve’s favored inflation reading was unchanged in July, according to federal data reported Wednesday, as central bank officials have signaled interest rate hikes unless they see improvements to consumer price increases.

Annual inflation was 3.3% in July, according to core personal consumption expenditures (PCE) price index data published Wednesday by the Bureau of Economic Analysis, falling above consensus analyst estimates of 3.2% and matching June’s price increases.

Headline PCE was 3.7% in July, just above projections of 3.6%.

During the Federal Open Market Committee’s July meeting, “many” participants” indicated interest rate hikes would “likely be necessary if inflation did not decline,” according to minutes from the meeting published last week, which also said officials’ inflation outlooks were “highly uncertain” as the Iran war “clouded” projections.

Officials also appeared to disagree over how inflation would change through the end of the year, as “most” participants anticipated consumer prices steadily cooling while “many” acknowledged the “possibility that inflation might be more persistently elevated.”

The Federal Reserve prefers core PCE data over Consumer Price Index (CPI) reports because policymakers can better understand how Americans spend their money and how their spending habits shift over time.

Federal Reserve Chair Kevin Warsh will give his first speech at the central bank’s annual symposium in Jackson Hole, Wyoming, on Friday.

40.4%. Those are the odds markets have priced in for the Federal Reserve to hike interest rates next month, according to CME Group’s FedWatch . Those odds jump through December, where odds hit 72.7%.

Inflation surged earlier this year after a conflict accelerated between the U.S. and Iran, causing oil and energy costs to spike. Warsh has said the Federal Reserve’s goal is to restore price stability, and analysts have suggested that unchanged inflation readings would likely keep the central bank from raising interest rates. After an in-line CPI report earlier this month, Morgan Stanley Wealth Management chief strategist Ellen Zentner said a “no need to hike rates” narrative was intact for the Fed. Colin Martin, Charles Schwab's head of fixed income research, said, “When the labor market is strong and inflation is high, it’s harder to defend not hiking interest rates.”

Fed’s Preferred Inflation Meter Unchanged In July—Here’s Why Interest Rates Hikes Are Now More Likely — Forbes | AIPROPX