Fed warns inflation is rising again ahead of July rate meeting
The Federal Reserve says inflation accelerated as energy, food and tariff pressures weigh on households before its July 28-29 policy meeting.
The Federal Reserve is warning Congress that inflation has accelerated again, putting renewed pressure on households before the central bank’s next policy meeting.
In its Monetary Policy Report formally submitted to Congress under the Federal Reserve Act on July 10, the Fed said the personal consumption expenditures price index rose 4.1 percent over the 12 months ending in May. That was up from 2.5 percent a year earlier. Core PCE inflation, which excludes food and energy, reached 3.4 percent, compared with 2.8 percent a year earlier.
The figures are well above the Federal Open Market Committee’s 2 percent inflation objective. They cover the 12 months ending in May, not June or July.
Energy, food and tariffs are adding pressure
The report said energy prices rose sharply after the start of the conflict in the Middle East. The Fed also said tariff increases and higher input costs contributed to rising consumer-goods prices. It did not identify tariffs or energy costs as the sole cause of inflation.
Food prices rose 2.4 percent over the year ending in May, and the report said food prices were almost 30 percent above pre-pandemic levels.
Housing-services inflation has cooled. Longer-term inflation expectations also remained broadly stable, although several measures of shorter-term expectations rose.
What the Fed told Congress
Chairman Kevin Warsh told the House Financial Services Committee on July 14 that the Fed held its federal funds target range at 3.5 percent to 3.75 percent during its June meeting. The Federal Reserve’s testimony schedule says Warsh submitted identical remarks to the Senate Banking Committee on July 15.
Warsh described the labor market as broadly stable. The unemployment rate stood at 4.2 percent in June, and layoffs remained subdued. That gives policymakers another factor to weigh alongside renewed inflation pressure.
Why households should care
The federal funds target range is not the same as the interest rate on a credit card, mortgage, auto loan or business loan. Consumer rates can respond differently and on different timelines.
Still, elevated Fed rates generally keep short-term borrowing expensive, especially for people carrying variable-rate credit-card balances or seeking new business financing. Mortgage rates are also shaped by longer-term bond markets, so a Fed decision would not automatically produce an immediate drop in home-loan rates.
Higher food and energy costs can reduce purchasing power even when wages continue to rise. The effect differs by household income, spending patterns, employment situation and borrowing arrangements.
What happens next
The next FOMC meeting is scheduled for July 28-29, followed by a press conference on July 29. The Fed has not announced whether it will raise, lower or hold rates at that meeting. Officials are expected to weigh inflation, employment, financial conditions and incoming data.
Warsh also described five task forces examining Fed communications, balance-sheet policy, data sources, productivity and jobs, and inflation frameworks. Those reviews could inform future policy discussions, but they are not immediate changes to interest rates or adopted policy.
Sources
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