Inflation Hit 2.6% in June, Fed’s Favorite Gauge Shows

Key Facts

What To Watch For

Whether the Fed opts for a rate cut during its September meeting. After deciding against a rate easement in July, Fed Chair Jerome Powell said the agency’s policymaking panel had yet to make a decision for September. The Fed’s “obligation” is to keep long-term inflation expectations “well-anchored,” Powell said Wednesday, noting the Fed’s current monetary policy was “appropriate to guard against inflation risks,” as the effect of tariffs on the economy and inflation “remain to be seen.” Two Fed governors voted against holding interest rates between 4.25% and 4.5% and called for quarter-point reduction, the first pair of dissenting votes for the agency’s policymaking vote since 1993. There are about 39% odds for a quarter-point rate cut in September, according to CME’s FedWatch, with higher chances forecast (60%) for the Fed’s meeting in October

Key Background

Core PCE is viewed more favorably by the Fed than data released by the Bureau of Labor Statistics because it allows the agency to better account for how Americans spend their money. Recent Bureau of Labor Statistics marked a 0.3% year-over-year increase for consumer prices in June, up to 2.7% and above analyst estimates, while core consumer prices marked an annual 2.9% jump, which came below projections. Economists have warned Trump’s wide-reaching tariffs would raise prices for American consumers this year, with some analysts projecting steep increases for inflation data by the end of 2025. UBS analysts expect core CPI inflation to hit 3.9% by December, matching a peak set in January 2024, while Bank of America economists project core PCE inflation to rise to 3.1%.

Further Reading

ForbesFed Decides Against Interest Rate Cut—But Powell Faces First Double Dissent In DecadesBy Ty Roush