The Federal Reserve’s preferred inflation gauge came in hotter than Wall Street expected, and the timing could not be worse for a central bank already at war with itself.
July’s Personal Consumption Expenditures price index rose 3.7% year-over-year, overshooting the 3.6% consensus estimate. Core PCE, which strips out food and energy, matched forecasts at 3.3% annually and 0.2% on a monthly basis. Both readings remain uncomfortably far from the Fed’s 2% target.
A central bank split down the middle
The inflation data drops into an already fractured Federal Open Market Committee. Three members dissented at the July meeting, pushing for a rate hike rather than holding the federal funds rate at its current 3.50% to 3.75% range.
The hawkish camp has recognizable faces. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari have all made the case for tighter policy. Their argument boils down to a simple observation: core PCE has been stuck above 3% for an extended stretch, and the gap between where inflation sits and where the Fed wants it to be is not closing fast enough.
