The latest Core PCE inflation update has reinforced concerns that the Federal Reserve’s inflation problem is far from solved. Released this week, the Fed’s preferred measure came in at +3.3% year-on-year, unchanged from the previous reading and above the central bank’s 2% target for more than five years.
Although the reading matched expectations, it has climbed from 2.6% in April last year, underscoring sticky upward pressure. By contrast, Core CPI—the more widely followed gauge—rose +2.5% last month, the lowest since April 2021. That earlier CPI figure encouraged investors and reduced market expectations for further rate hikes through year-end.
Adding to the uncertainty, new Fed Chair Kevin Warsh, who replaced Jerome Powell in May, has rejected forward guidance and reportedly prefers a trimmed CPI measure. Meanwhile, wholesale inflation remains elevated: Core PPI came in at +4.2% in July, even after falling since April. Three of twelve FOMC members cited rising inflationary pressures as their reason for voting for a 25-basis-point rate hike at the last meeting.
The macro backdrop is mixed. Two consecutive weak Non-Farm Payroll reports, poor retail sales, and disappointing earnings—including Walmart’s slowest quarterly sales growth in six years—suggest lower-income households are under strain even as higher earners keep spending. All of this comes before Warsh’s keynote speech at the Jackson Hole Economic Symposium on Friday, August 28.
Adding another layer, US Treasury Secretary Scott Bessent has actively tried to weaken the dollar. The Treasury announced a doubling of purchases of longer-dated government bonds, driving yields lower and pressuring the dollar. This followed a July intervention with Japan’s Ministry of Finance to support the yen. The column by David Morrison, Senior Market Analyst at Trade Nation, notes the Fed chair may choose to say nothing on rates, given his preference for less transparency.
