Core inflation held at 3.3 percent annually in July, according to the Federal Reserve's preferred measure, released Wednesday by the Commerce Department. The personal consumption expenditures price index rose 0.2 percent for the month, putting the headline annual rate at 3.7 percent. Both the monthly and annual headline figures came in 0.1 percentage point above the Dow Jones consensus.
The core PCE number, which strips out food and energy, matched forecasts at 0.2 percent for the month and 3.3 percent for the year. According to CNBC, Fed policymakers generally treat core inflation as the better measure of longer-term trends. The headline rate remains well above the central bank's 2 percent target.
Personal income rose 0.4 percent in July, or $115.1 billion, according to the Bureau of Economic Analysis. Disposable personal income climbed 0.5 percent. Consumer spending rose 0.2 percent, or $36.3 billion. Both the income and spending figures came in stronger than expected. Private wages and salaries led the compensation gain. Medicaid and Medicare were the leading contributors to the rise in government social benefits.
The personal saving rate in July stood at 3.0 percent. Spending on services rose $86.2 billion, driven by a 1.2 percent increase in financial services and insurance and a 0.3 percent gain in housing. Spending on goods fell $49.9 billion. Goods prices overall dropped 0.1 percent on the month, with gasoline and energy-related goods down 2.7 percent and furnishings and long-lasting household equipment down 0.9 percent.
Stock market futures pulled back slightly after the report while Treasury yields moved higher. Both 10-year and 30-year Treasury yields have recently hit their highest levels since 2007, just before the global financial crisis. The surge has come from several factors, including investor concern about the Fed's commitment to its inflation target and worries about federal debt and deficits.
Treasury Secretary Scott Bessent announced an initiative a week ago in which his department would step up buybacks of government debt. Market participants have expressed doubt about whether the move will have a meaningful impact on yields.
The rate-setting Federal Open Market Committee does not meet formally in August, giving officials a pause before their next gathering on September 15 and 16. Markets are pricing in roughly a one-in-three probability of a rate move at that meeting, with December seen as the more likely window for any action.
Fed officials are gathered this week in Jackson Hole, Wyoming, for their annual symposium. The highlight is a policy speech scheduled for Friday from Chairman Kevin Warsh. Since taking office in May, Warsh has been circumspect about where he sees policy heading, instead preferring that markets set the tone.
Separately, the Bureau of Economic Analysis confirmed Wednesday that real GDP grew at an annual rate of 1.5 percent in the second quarter of 2026, down from 2.1 percent in the first quarter. The figure matched the advance estimate. Consumer spending, exports, and investment all contributed to the gain, while a decrease in government spending and an increase in imports partly offset those drivers. Real final sales to private domestic purchasers rose 4.2 percent, revised up 0.3 percentage point from the prior estimate.
Corporate profits rose sharply in the second quarter. Profits from current production increased $400.9 billion, compared to an increase of just $74.4 billion in the first quarter. The GDP price index for gross domestic purchases rose 5.8 percent in the second quarter, revised up 0.1 percentage point. The PCE price index for the quarter rose 5.3 percent, also revised upward.
The BEA said its next release covering GDP and personal income data is scheduled for September 30, 2026.
