An inflation measure closely watched by the Federal Reserve remained elevated last month, indicating that many Americans continue to face persistent higher costs. The Commerce Department reported that prices rose 3.7% in July compared to a year earlier, the same rate as in June. This figure is notably above the Federal Reserve's target of 2% and has worsened since late February.
The personal consumption expenditures (PCE) price index, which is distinct from the more commonly cited consumer price index (CPI), showed inflation running hotter. This difference is partly attributed to the PCE index placing less weight on cooling rental costs.
Federal Reserve Governor Kevin Warsh stated on Friday that inflation remains too high and indicated that the central bank might need to increase interest rates in the coming months. In his first major speech at the Federal Reserve's annual conference in Jackson Hole, Wyoming, Warsh acknowledged a slight cooling in recent inflation data but expressed that "underlying trends have not meaningfully improved." He emphasized the need for confidence that underlying inflation is moving towards the Fed's objective "clearly and at sufficient speed," otherwise, he suggested, "we have work to do."
The Federal Reserve's next meeting is scheduled for September 15-16. While Warsh's remarks do not guarantee a rate hike at that meeting, they signal that current interest rate levels may be insufficient to bring inflation down to the 2% target.
Separately, consumer confidence in the U.S. economy declined for August, with the Conference Board's index dipping to 89.4 from 90.2 in July, marking a seven-month low. Although views on the present situation improved, short-term outlooks soured. This frustration with the economy, exacerbated by five years of elevated inflation, could pose challenges for President Donald Trump and Republicans in the upcoming midterm elections.
The U.S. economy grew at a 1.5% annual pace from April through June, a deceleration from the 2.1% growth recorded in the first quarter. This slowdown was partly due to a significant increase in imports, which are subtracted from GDP calculations. Imports rose at a 12.5% annual pace, with a surge in shipments related to artificial intelligence investment contributing to the drag on growth.
Mortgage rates saw a slight increase this week, pushing the average 30-year fixed-rate mortgage closer to its yearly high. Freddie Mac reported that the average rate edged up to 6.66% from 6.65% last week, compared to 6.56% a year ago. Higher mortgage rates increase borrowing costs for homebuyers, potentially reducing purchasing power and contributing to a slowdown in home sales.
In the labor market, the number of Americans filing for unemployment benefits fell last week, continuing a trend of historically low layoff numbers. Jobless claims decreased to 203,000 from a revised 207,000 the previous week. The four-week average of claims ticked up slightly to 205,500. These claims serve as a proxy for layoffs and have remained within a range of approximately 200,000 to 230,000 per week for the past year.
The U.S. stock market remained relatively stable on Friday, with the S&P 500, Dow Jones Industrial Average, and Nasdaq composite all recording gains. Market reactions, particularly in the bond market, followed Warsh's speech at the Jackson Hole symposium, a venue historically associated with significant Federal Reserve policy announcements.