The central bank could raise borrowing costs soon if prices keep going up steadily
Americans are sick and tired of inflation.
The main inflation gauge used by the Federal Reserve to set U.S. interest rates rose at an elevated rate in July, pushing the central bank a step closer to a vote to raise interest rates in three weeks.
The so-called PCE index rose 0.2% last month, the government said Wednesday, higher than the 0.1% forecast of economists surveyed by Wall Street.
Over the past year, inflation has risen at a 3.7% pace, unchanged from the prior month. That's well above the Fed's 2% target.
A separate measure of inflation that strips out energy, known as the core rate, also rose 0.2% in July. The year-over-year increase was unchanged at 3.3%.
The Fed views the PCE index - the core rate in particular - as the most accurate barometer of U.S. inflation trends.
Key details: The PCE index had fallen in June for the first time in six years owing to lower gas prices. Cheaper gas also held down the rise in inflation in July.
Gas prices won't offer any relief in August, however. Oil prices rose around $15 a barrel, to the low $80s, after the U.S. and Iran resumed hostilities.
That's not all. There's no end in sight to the Iran conflict and now President Donald Trump is again threatening a trade war with Canada.
The next consumer-price index report, for August, is due on Sept. 11, and it could prove pivotal to the Fed's decision.
Big picture: The Fed is primed to raise interest rates soon unless inflation slows significantly. The latest PCE report could tilt the Fed toward a hike, but investors aren't entirely convinced.
Looking ahead: "These high inflation readings should keep the [Fed] overall in a hawkish mood and poised to raise rates if we do not see significant cooling in the coming months," Nationwide chief economist Kathy Bostjancic said.
Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were down slightly in Wednesday trading.
-Jeffry Bartash
Comments