The Bureau of Economic Analysis dropped two reports into the same 8:30 a.m. slot this morning, and neither of them gave the Federal Reserve an excuse. The July personal consumption expenditures price index — the gauge the Fed actually targets — rose 0.2% on the month and 3.7% from a year ago, a tenth of a point above the Dow Jones consensus. Core PCE, stripping out food and energy, also rose 0.2% and held at 3.3% annually, exactly where it sat in June and exactly where economists expected.
Alongside it, the second estimate of second-quarter GDP left growth at 1.5%, unchanged from the advance reading. An upward revision to consumer spending was offset by an upward revision to imports. Underneath the headline, the composition is what deserves attention: spending rose $36.3 billion in July, but that was an $86.2 billion increase in services against a $49.9 billion decline in goods. Personal income climbed $115.1 billion, or 0.4% — twice the rate of spending.
Markets shrugged. The Dow slipped about 0.1%, the S&P 500 sat just under flat and the Nasdaq eased 0.1%.
Our take: Two months of core PCE at 3.3% is not disinflation. It is a plateau, and a plateau nearly two points above target is a policy problem. Pair it with 1.5% real growth and you have the mix nobody wants to name out loud: prices that won’t come down and an economy that isn’t growing fast enough to make that painless. The income-versus-spending gap is the household version of the same story — people earned twice what they spent last month, and cut goods purchases outright. That is not confidence. That is bracing.
Why the hike talk hasn’t gone away
This is the detail that keeps surprising people who stopped watching in the spring: futures are not pricing the next Fed move as a cut. CME data has put the odds of a 25-basis-point increase at the September 16 meeting near 45%, down from about 55% a month ago after softer CPI and PPI prints. The direction of travel is toward patience, but the live scenario on the table is tightening, not easing.
The next real signal is Friday. Fed chair Kevin Warsh gives his first Jackson Hole keynote, and this Fed has largely stopped telegraphing between meetings, which makes a set-piece speech the richest scheduled information left before September. Expectations are low for explicit guidance and high for tone.
And then there’s tonight
Nvidia reports fiscal Q2 after the close. Consensus is roughly $2.09 a share on about $92.2 billion in revenue, which would be growth near 97% year over year. It is the single largest index constituent reporting into a tape that just absorbed a hot inflation print and a mediocre growth number on the same morning.
What to watch
- Whether goods spending falls again in August — one month is noise, two is a trend.
- Warsh’s Friday tone, and how September hike odds move in the hour after he finishes.
- Nvidia’s guidance and margin commentary tonight, which will set the tape for the rest of the week.
- The savings rate in next month’s release. If income keeps outrunning spending, the fourth quarter gets harder.
The Sharp Brief reports on markets. Nothing here is investment advice.