US Core PCE Expected to Remain at 3.3% in July, Fueling September Rate Hike Speculation

Huo Xing Finance reports: At 8:30 PM Beijing time on August 26, the U.S. Department of Commerce will release the July Personal Consumption Expenditures (PCE) price index. Markets expect overall PCE to rise 0.1% month-over-month in July, with the year-over-year increase easing from 3.7% in June to 3.6%; core PCE is projected to rise month-over-month from 0.1% to 0.2%, while the year-over-year rate holds steady at 3.3%, marking the 65th consecutive month above the Federal Reserve’s 2% inflation target. Notably, price increases across the AI supply chain, higher investment portfolio management fees driven by elevated stock valuations, and rising energy costs due to geopolitical tensions in the Middle East may all serve as potential drivers of core inflation. Goldman Sachs estimates that stock valuation factors alone could contribute approximately 0.11 percentage points to the month-over-month increase in core PCE. Of further concern to markets, the U.S. Bureau of Economic Analysis plans to comprehensively revise its PCE statistical methodology by the end of September, potentially adjusting price calculations for categories such as computer hardware, stock portfolio management, and legal services, and possibly revising historical data—increasing the complexity of interpreting inflation figures. Currently, market expectations for the Fed’s policy path in September are diverging. According to CME’s “FedWatch” tool, the probability of the Fed holding rates steady in September stands at 59.9%, while the likelihood of a 25-basis-point hike has risen to 40.1%. Markets are also awaiting this week’s Jackson Hole symposium for fresh signals from Fed Chair Powell on inflation and future interest rate policy.