July PCE at 3.7%, Exceeding Fed's Target for 65 Months

The Personal Consumption Expenditures (PCE) price index in the United States rose by 3.7% in July compared to the same month last year, exceeding the Federal Reserve's (Fed) 2% target for 65 consecutive months. Excluding food and energy, the core PCE increased by 3.3%, adding pressure to the assessment of the September interest rate. According to the Bureau of Economic Analysis (BEA), the July PCE price index rose by 0.2% from the previous month, while the core PCE increased by 3.3% year-on-year and by 0.2% month-on-month. The core PCE is a key indicator that the Fed emphasizes when assessing underlying price trends, as it excludes volatile items to evaluate the persistence of price pressures. When prices remain above the target for an extended period, the Fed must consider the risks of economic slowdown and price entrenchment simultaneously. Raising interest rates could burden consumption and employment, while freezing or lowering rates could shake price expectations. Fed Chair Kevin Warsh stated during his congressional testimony in July that he would not tolerate high prices, but he did not provide specific signals regarding the next policy direction. The Fed kept the benchmark interest rate unchanged at the July FOMC meeting, although some members preferred a 0.25% increase. As the market approaches the September meeting, it is focusing on price indicators and Fed statements, and this data could impact the dollar and risk asset prices. With both July PCE and core PCE exceeding the target, the Fed is expected to determine the direction of interest rates at the September meeting, considering price stability and economic trends.

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