US Inflation Holds Steady Above Fed Target

**Implied Volatility / Movement:** ### Money Play - With inflation proving persistent, investors may monitor fixed income for potential shifts in rate expectations. ### Executive Thesis U.S. inflation held firm in July, challenging the Federal Reserve's 2% target and increasing the likelihood of further monetary tightening. This persistent inflation trend, particularly with rebounding energy prices, complicates the outlook for consumers and businesses. ### The Print The Personal Consumption Expenditures (PCE) Price Index for the 12 months through July was 3.7 percent, unchanged from June. The month-over-month figure rose to 0.2 percent. Excluding energy and food, the core PCE held steady at 3.3 percent on the year while increasing to 0.2 percent monthly. ### Market Reaction Fed funds futures reflected approximately a 42 percent probability of a rate hike at the central bank’s September 15-16 meeting following the report, up from about 36 percent previously. ### What It Means for Policy & Positioning The inflation data provides support for the Federal Reserve to consider increasing interest rates. Persistent price pressures, especially with rising energy costs, align with the central bank's mandate to combat inflation. ### Next Calendar Watch August inflation figures are expected to be reported next month, with petrol prices having rebounded this month.