Core personal consumption expenditures, the Federal Reserve's preferred inflation measure, rose 0.2% in July, matching the modest pace that policy makers have said they want to see. Year over year, the core reading eased to a level close to the central bank's 2% objective.
The details were broadly encouraging. Goods prices stayed soft as supply chains normalized, while services inflation slowed after a run of firm readings earlier in the year. Shelter costs, the stickiest component, finally began to cool in the data.
For investors, the takeaway is straightforward: the inflation backdrop is improving enough that markets now debate not whether rates will come down, but how quickly. Bond yields and rate-sensitive stocks will keep reacting to every data point between now and the next meeting.
Key takeaways
- Core PCE is the Fed's preferred inflation yardstick
- Slowing shelter costs are the key driver of the improvement
- Rate expectations now drive the next leg for yields and stocks
