31.07.2025 15:08
June's inflation rate, as measured by the core personal consumption expenditures (PCE) price index, unexpectedly surged to 2.8%, exceeding analysts' predictions. This figure, released Thursday by the Bureau of Economic Analysis, poses significant challenges to the Federal Reserve's efforts to curb inflation and reignite debate about potential interest rate adjustments.
This latest inflation data significantly surpasses the Federal Reserve's 2% target, marking the 52nd consecutive month above that benchmark. The core PCE index, favored by the Fed for its exclusion of volatile food and energy prices, further solidified the persistent inflationary pressures affecting the US economy. Headline PCE inflation also rose, reaching 2.6%, a 0.3% increase from May and outpacing expectations.
The unexpected jump in inflation raises crucial questions about the Federal Reserve's upcoming September meeting. Following their July decision to maintain interest rates, Chair Jerome Powell indicated that a rate cut in September remained undecided. His comments emphasized the Fed's commitment to anchoring long-term inflation expectations, highlighting the ongoing assessment of monetary policy's effectiveness and the uncertain economic impact of tariffs.
Interestingly, a notable dissent emerged within the Federal Reserve's policymaking committee. Two governors voted against the decision to keep interest rates between 4.25% and 4.5%, advocating for a quarter-point reduction—a first since 1993. Market expectations, reflected in CME's FedWatch tool, currently assign a 39% probability to a September rate cut, with a more significant 60% chance projected for October.
The Federal Reserve's preference for the core PCE index over other inflation measures stems from its ability to provide a more nuanced and accurate reflection of underlying price pressures, allowing for a more comprehensive assessment of the economy's inflationary trends.
