Preview, today: Fed’s favoured inflation gauge lands two days before Warsh’s Jackson Hole speech
Today’s PCE print carries added weight given its timing, landing just two days ahead of Fed Chair Warsh’s first Jackson Hole keynote and before Nvidia’s earnings, making this a genuinely stacked stretch for US macro risk. A softer than expected core reading would likely reinforce the case for continued rate cuts and could pressure the dollar while supporting risk assets, whereas a hotter print would revive the hawkish argument that has already produced an unusually split FOMC vote and rising discount rate dissent. Given June’s headline figure was a rare negative print, today’s data will also be read as a signal of whether that dip was a genuine turn or a one off distortion, with the answer likely to shape how much weight markets place on Warsh’s remarks on Friday.
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The Fed’s preferred inflation gauge is expected to confirm progress is real but slow, leaving Warsh’s Friday speech to decide what that means for rates.
Summary:
- The Bureau of Economic Analysis releases its Personal Income and Outlays report for July today, Wednesday 26 August, at 8:30am Eastern (12:30pm GMT)
- FactSet consensus sees headline PCE rising 0.07% month on month, following a 0.11% decline in June, with the year on year rate easing to 3.6% from 3.7%
- Core PCE, which excludes food and energy, is forecast to rise 0.18% month on month, with year on year estimates ranging from holding at 3.3% to easing slightly to 3.2%
- Independent forecaster Continuum Economics expects the data to track July’s CPI closely, seeing headline at 0.1% and core at 0.2% month on month
- Natixis chief US economist Christopher Hodge takes a slightly more hawkish view, forecasting headline PCE unchanged at 3.70% year on year, citing continued upward pressure from computer hardware and software prices tied to AI and data centre investment
- June’s PCE reading was the first negative month on month print since 2020, meaning today’s data will be watched closely for whether that dip proves durable or reverses
- The release lands two days ahead of Fed Chair Kevin Warsh’s first Jackson Hole keynote address as chair, scheduled for Friday
The Bureau of Economic Analysis releases its Personal Income and Outlays report for July today, Wednesday 26 August, at 8:30am Eastern time, delivering the Federal Reserve’s preferred inflation gauge at a moment when the central bank’s rate path remains genuinely contested.
Consensus forecasts compiled by FactSet see headline PCE inflation rising 0.07% on the month, a rebound from June’s 0.11% decline, which was the first negative monthly PCE reading since 2020. On an annual basis, headline inflation is expected to ease modestly to 3.6% from 3.7%. Core PCE, which strips out volatile food and energy prices and is the measure the Fed watches most closely, is forecast to rise 0.18% month on month, with economists divided over whether the year on year rate holds at 3.3% or eases slightly to 3.2%.
Independent forecasters broadly align with that picture, though with some divergence in emphasis. Continuum Economics expects the July PCE data to closely mirror the already released July CPI report, forecasting headline inflation at 0.1% and core at 0.2% month on month, which would take the annual core rate down to 3.2% from June’s 3.3%. Natixis chief US economist Christopher Hodge takes a somewhat firmer view, forecasting headline PCE unchanged at 3.70% year on year, and noting that while broader tariff related price pressure appears to be fading, computer hardware and software prices tied to the ongoing artificial intelligence and data centre investment boom continue to add to core inflation readings.
The data lands at a particularly sensitive point in the Fed’s policy calendar. It follows last week’s release of both the July FOMC minutes, which revealed broader support for a rate hike than the formal 9-3 vote suggested, and this week’s discount rate minutes, showing four of the Fed’s twelve regional bank boards had favoured tightening ahead of that same meeting. Today’s PCE print will be one of the last major data points available before Fed Chair Kevin Warsh delivers his first Jackson Hole keynote address as chair on Friday, an appearance being closely watched for signals on whether the Fed leans toward holding rates, resuming cuts, or shifting back toward tightening.
Asset markets are expected to react in a fairly conventional pattern depending on the outcome. A softer than forecast core reading would likely support equities, particularly growth and technology stocks, while weighing on the dollar and lifting gold, consistent with reduced pressure for further tightening. A hotter than expected print would likely have the opposite effect, pushing Treasury yields higher, pressuring growth stocks, strengthening the dollar and prompting profit taking in gold, while reinforcing the hawkish case that has already produced unusual dissent within the Fed’s own ranks this cycle.
This article was written by Eamonn Sheridan at investinglive.com.