Modest July Inflation Is Necessary, but Not Sufficient for a Fed Hold
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Economic Data & Analysis

Modest July Inflation Is Necessary, but Not Sufficient for a Fed Hold

26 August 2026 / Brief

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Trusted Insights for What’s Ahead®

  • July’s modest PCE inflation reading was a necessary condition for the Fed to hold interest rates steady at the upcoming FOMC meeting on September 16th.

  • To be sufficient for the Fed to remain on hold the August PPI and CPI reports, due September 10 and 11, respectively, must continue to indicate no re-acceleration in inflation.
  • Both Headline PCE and core PCE (total ex. food and energy) inflation increased by 0.2% m/m and remained unchanged on a y/y basis in July at 3.7% and 3.3%, respectively.
  • Weaker consumer demand for goods and services may now start to moderate underlying inflation, as consumers increasingly prioritize necessities and pull back on discretionary goods and services.
  • Indeed, reduced consumer spending on discretionary categories is limiting price increases for these categories, evident in the latest inflation gauges.
  • Meanwhile abating shelter cost inflation continues to help push inflation closer to the Fed’s 2% target.
  • We project headline and core PCE inflation to moderate to 3.4% and 3.2%, respectively, by year end.

Author

Yelena Shulyatyeva

Yelena Shulyatyeva, CFA

Senior US Economist

Read BioYelena Shulyatyeva

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