July’s Personal Consumption Expenditures (PCE) showed that headline inflation rose 0.2% from June, while the year-over-year reading remained at 2.5%. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, also rose 0.2% monthly. The year-over-year reading held steady at 2.6%, remaining at the lowest level in three years.
What’s the bottom line? Inflation has been moderating and is heading toward the Fed’s 2% target as measured by Core PCE. The cooling consumer inflation we’ve seen in recent months combined with signs that the job market is slowing have led to growing calls for the Fed to begin cutting their benchmark Fed Funds Rate, which is the overnight borrowing rate for banks.
Fed Chair Jerome Powell recently confirmed that “the time has come for policy to adjust.” The latest PCE readings keep the Fed on track to cut rates at their next meeting on September 18.
