Fed’s Inflation Nightmare: PCE Stuck at 2.9%, September Rate Cut Panic Builds

Fed’s Inflation Nightmare: PCE Stuck at 2.9%, September Rate Cut Panic Builds

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Table of Contents

Inflation Refuses to Budge

Key Highlights

• Core PCE, the Fed’s preferred gauge, refuses to cool, holding at 2.9% in July.

• Traders now price a near-certain September cut, but cracks in the labor market raise fears of deeper turmoil.

Paradisers! What happens when the Fed’s favorite inflation number won’t come down? You get a panic brewing in financial markets. July’s Core PCE index, the cleanest inflation gauge the Fed trusts, held firm at 2.9% year-over-year, refusing to break lower despite months of tightening. Services inflation is still burning at 3.6%, far above target.

This isn’t just stubborn inflation, it’s the kind of stickiness that forces central bankers into corners.

Consumers Keep Spending as Savings Shrink

Households aren’t blinking yet. Spending jumped 0.5% in July and incomes grew 0.4%. But the savings rate slid again, now down to 4.4%. Americans are still spending as if nothing’s wrong, but that widening gap between real incomes and prices is becoming a ticking time bomb.

Waller Raises Alarm: “Let’s Get On With It”

Fed Governor Christopher Waller has had enough. Breaking with Powell’s steady-hand rhetoric, he declared in Miami that he will back a 25-basis-point cut in September, warning that the jobs market is already unraveling beneath the surface.

Revisions erased more than 250,000 jobs from the past two months, painting a bleaker labor backdrop. “Waiting,” Waller warned, “would risk falling behind the curve.” The Fed’s credibility is now trapped between stubborn inflation and a weakening economy.

Markets Brace for Fallout

Equities slipped on the release, bond yields wobbled, and futures are now pricing a September cut with near certainty. But traders whisper the real fear: what if one cut isn’t enough? A cycle of emergency easing could signal something far darker lurking in the economy.

The Paradise Edge

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