Image Source: Pixabay
 

Core PCE is up 2.8 percent from a year ago, no change in 8 months.

PCE Inflation Detail Year-Over-Year
 

Chart Notes

• PCE stands for Personal Consumption Expenditures. In this case, we are discussing the PCE price index.
• PCE is in an uptrend since bottoming at 2.10 percent in September of 2024.
• PCE goods bottomed at -1.2 percent in September of 2024. It’s been in a wild tariff ride since. Expect up from here.
• PCE services has seen mild improvement since September of 2024 falling from 3.68 percent to 3.49, hardly the improvement the Fed wants.
• Core PCE has been flat for 8 months but is up from 2.66 percent in September of 2024 to 2.79 percent in June.

Five Measures of Inflation Percent Change Year-Over-Year
 

The only clear downtrend in the above chart is the BLS CPI measure of rent.

It’s possible, if not likely, the other chart items started uptrends in April of 2025.

PCE Inflation Detail Month-Over-Month
 

Month-Over-Month PCE Details

• PCE: 0.3 percent
• PCE Goods: 0.4 percent
• Core PCE: 0.3 percent
• PCE Services: 0.2 percent

The number to beat for July is 0.17 for both the PCE and Core PCE. Readings above 0.17 percent will result in an increase in the year-over-year numbers.

It was on this basis, and medical care costs, I expected a rise in year-over-year PCE numbers today.

There is not an easy-to- beat set of numbers until January 2026. The numbers to beat In January will be 0.38 on the PCE and 0.34 on the core PCE.

I expect to see year-over-year core PCE back above 3.0 percent before January unless all hell breaks loose economically.

Nothing Above Suggests Rate Cuts

If you think the above PCE and CPI data merits a rate cut, you are highly likely influenced by Trump or some other bias.

What If?

All hell could break loose, and by that I mean collapsing demand and job losses coupled with price declines.

But that’s betting on a trifecta.

There are other scenarios including a nasty wave of stagflation. In the stagflation light scenario, prices increase due to tariffs and jobs weaken but not collapse.

More concerning to the Fed would be huge price hikes due to tariffs and significant labor market weakening.

All of these scenarios, and everything in between, are why the Fed is on hold.

Labor Markets

I believe the labor market is weaker than the Fed thinks. I am sure of it.

Yet, the economy has been much more resilient than I expected. That’s something Powell mentioned a well.

I am no Fed apologist, and there should not be a Fed at all. However, one thing worse than a Fed would be a Fed controlled by politicians.

Related Posts

July 31, 2025: Real Disposable Personal Income Flat in June, Inflation Eats All Wage Gains

DPI rose 0.3 percent but so did the PCE price index.

July 31, 2025: Another Weak ADP Payroll Report, Especially Small Businesses

ADP reported a gain of 104,000 private payrolls. Small businesses weak again.

Be prepared for anything.

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