The Fed's preferred inflation measure held flat in July, leaving its September rate call in doubt
The Federal Reserve's preferred inflation gauge held steady in July, delivering a mixed signal for mortgage professionals as policymakers prepare to weigh their next move ahead of the September meeting.
The personal consumption expenditures (PCE) price index rose 0.2% on a seasonally adjusted basis for the month, putting the annual rate at 3.7%. It's unchanged from June and 0.1 percentage point above the Dow Jones consensus, the Commerce Department's Bureau of Economic Analysis (BEA) reported Wednesday.
Core PCE, which strips out volatile food and energy costs, gained 0.2% monthly and 3.3% annually, landing in line with expectations.
The result leaves the Fed in familiar territory. Its benchmark rate has been held in the range of 3.50% to 3.75% since December, and annual inflation has now exceeded the central bank's 2% target for 65 consecutive months.
Rate decision pressure mounts ahead of Jackson Hole
With the Federal Open Market Committee (FOMC) not scheduled to meet in August, officials convene this week in Jackson Hole, Wyoming, for the Fed's annual economic symposium. Chair Kevin Warsh, who took office in May, is set to deliver a policy address Friday.
Markets are pricing in roughly a one-in-three probability of a rate move at the September 15–16 meeting, according to market data, with December seen as the more likely window for action.
The stall in inflation's decline is compounding a rate debate that has already divided the committee. Odeta Kushi, deputy chief economist at First American Financial Corporation in Washington, D.C., captured the prevailing tone in June.
"The more likely story for the second half of the year is volatility around a higher-for-longer range, rather than a meaningful decline in mortgage rates," Kushi told Mortgage Professional America.
A Fed rate hike could mean lower mortgage rates. Veteran bond trader Billy Abrams says chart patterns point to a Treasury rally before yields climb again. Read more now.https://t.co/YT9a5YA014#mortgage #FederalReserve #bondmarket #IFSecurities
— Mortgage Professional America Magazine (@MPAMagazineUS) August 21, 2026
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA) in Washington, D.C., was equally direct.
"MBA continues to anticipate that the Fed's next move will be a rate hike, and that means mortgage rates are unlikely to drop anytime soon," Fratantoni said.
Within July's report, goods prices fell 0.1%, driven by a 2.7% drop in gasoline and energy-related products and a 0.9% decline in household durables.
Services prices rose 0.3%, lifted by a 1.2% gain in financial services and insurance and a 0.3% increase in housing.
Personal income advanced 0.4% while consumer spending rose 0.2%, both exceeding forecasts.
Trade tensions add fresh inflationary headwinds
The outlook grew more complicated after US-Canada trade negotiations collapsed Friday, triggering new tariffs on approximately $20 billion in Canadian goods imports, with both governments announcing additional retaliatory measures.
Treasury yields have climbed in parallel, with 10- and 30-year benchmarks recently reaching their highest levels since 2007.
Treasury Secretary Scott Bessent announced a debt buyback program last week, though market participants have expressed skepticism about its ability to meaningfully move yields.
The BEA also confirmed second-quarter GDP growth at an annualized 1.5%, unchanged from its prior estimate.
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