Headline inflation held at 3.7% instead of the 3.6% forecast. Personal income rose 0.4% against a 0.2% estimate. Personal spending grew just 0.2%, its slowest pace in over a year.
July's personal consumption expenditures report, the Fed's preferred inflation gauge, showed headline inflation running at 3.7% year over year, missing the forecast of a modest deceleration to 3.6%. Core inflation, which strips out food and energy, held at 3.3% year over year, matching both the forecast and the prior month exactly. On a monthly basis, headline inflation rose 0.2% against a 0.1% forecast, while core inflation rose 0.2%, up from 0.1% in June.
Personal income jumped 0.4% in July, well ahead of the 0.2% forecast. Personal spending grew just 0.2%, matching forecasts but marking its slowest pace in over a year. Durable goods orders rose 1.1%, beating a 0.5% forecast, though orders excluding transportation rose just 0.4% against a 0.6% estimate, a softer signal beneath the headline beat. The second estimate of second-quarter GDP growth held at 1.5% annualized, unchanged from the first estimate but down from the first quarter's 2.1% pace.
Markets treated the release as close to expected. The 10-year Treasury yield held flat immediately after the report, and the S&P 500 opened up just 0.1%, with major indexes little changed by early afternoon. Markets were also positioning ahead of Nvidia's after-the-close earnings report the same day.
The report's real significance may not be Wednesday's tape but Friday's calendar. Kevin Warsh delivers his first keynote as Fed chair at the Jackson Hole Economic Symposium on Friday, and a survey published Wednesday found 80% of Fed watchers want him to reveal more of his thinking than he has so far offered. A report showing income outrunning spending, and inflation refusing to fall on schedule, gives Warsh three competing signals to address in a speech markets are treating as his first real test.