US PCE inflation rose to 3.7% in July as income and spending grew. Higher service prices may keep pressure on the Fed ahead of its September meeting.

Updated on: Aug 26, 2026, 20:51:40 IST

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Prices paid by US consumers for goods and services increased slightly in July. The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 0.2% in July from the previous month. On a yearly basis, PCE inflation reached 3.7%. Both the monthly and yearly readings were 0.1 percentage point higher than the Dow Jones forecasts, according to the Commerce Department.

Core PCE inflation removes food and energy prices because they can change sharply from month to month. Core PCE increased 0.2% in July on a monthly basis. It rose 3.3% from a year earlier. Both numbers matched forecasts. The Federal Reserve looks at both headline and core PCE, but policymakers generally consider core inflation a better guide to longer-term price trends, according to CNBC.

US personal income rises

Personal income increased 0.4% in July. The rise was stronger than economists had expected. This shows that household incomes continued to grow even as inflation remained above the Fed’s target. The Commerce Department reported the income increase alongside the latest PCE inflation data.

Personal spending rose 0.2% in July. Spending was also stronger than expected. The data shows that consumers continued to spend even though inflation remained higher than the Federal Reserve’s goal.

Goods prices fall

Prices for goods declined 0.1% in July. The biggest drop came from gasoline and other energy-related goods. Prices in that category fell 2.7% during the month. Furnishings and long-lasting household equipment also became cheaper, with prices falling 0.9%.

Services prices increased 0.3% in July. Financial services and insurance prices rose 1.2%. Housing prices increased 0.3%. The rise in services prices helped keep overall inflation elevated despite falling goods prices, according to CNBC.

Stock market reacts

Stock market futures moved lower after the inflation data was released. Treasury yields moved higher. The market reaction showed that investors were still concerned about inflation and what the latest numbers could mean for Federal Reserve policy.

The latest report comes as Fed officials decide what to do with interest rates next. Inflation has shown some softer monthly readings during the summer. However, the yearly inflation rate remains well above the Federal Reserve’s 2% target. This makes the next interest-rate decision difficult for policymakers, according to CNBC.

September Fed meeting ahead

The Federal Open Market Committee, or FOMC, does not have a formal meeting in August. Its next scheduled policy meeting is on September 15-16. This gives Fed officials more time to study inflation, jobs and other economic data before deciding what to do with interest rates.

Financial markets are currently pricing in about a one-in-three chance of a rate move at the September meeting. The market sees the best chance of a rate hike in December. This means investors are not expecting an immediate major change in Fed policy in September.

Even though the FOMC is not holding its regular policy meeting this week, Fed officials are gathering in Jackson Hole, Wyoming. They are attending the Federal Reserve’s annual economic symposium. The biggest event is a policy speech scheduled for Friday by Fed Chairman Kevin Warsh, according to CNBC.

Warsh took office as Fed chairman in May. Since then, he has been careful about saying where he believes interest rates should go next. Instead, he has preferred to let financial markets help set the tone for policy expectations.

Government bond yields have been rising in recent weeks. The 10-year Treasury yield and 30-year Treasury yield recently reached their highest levels since 2007. That was the period just before the global financial crisis.

US Treasury yields rise

Several factors are pushing Treasury yields higher. One major concern is whether the Federal Reserve will remain fully committed to bringing inflation back to its 2% target. Investors are also worried about the US government’s rising debt and budget deficit. These concerns can put upward pressure on long-term Treasury yields, according to CNBC.

Treasury Secretary Scott Bessent announced an initiative last week to increase government debt buybacks. The plan is designed to step up the Treasury Department’s purchases of government debt. However, investors and other market participants remain doubtful that the move will have a major effect on Treasury yields. This means bond markets may continue to focus on inflation, Fed policy and the US government’s debt and deficit situation.

The July PCE report gives the Federal Reserve a mixed picture. Inflation is still well above the 2% target, but core inflation came in exactly as expected, according to CNBC. At the same time, incomes and consumer spending remained strong.

Falling goods prices are helping, but higher service costs are keeping pressure on inflation. For investors, the key question now is whether inflation will cool enough for the Fed to change its interest-rate policy in the coming months.

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