The Commerce Department said prices rose 3.7% in July compared with a year earlier, leaving a key inflation measure stuck well above the Federal Reserve’s 2% target while ordinary people keep paying more for the basics.
The report used the personal consumption expenditures price index, not the consumer price index, and said inflation has worsened since the U.S. and Israel attacked Iran in late February, when it stood at 2.9%. That’s the kind of damage working people absorb first and longest. The AP said Americans are still struggling with higher costs.
Who Pays for the Decisions
Federal Reserve Chair Kevin Warsh said Friday that inflation is still too high and suggested the central bank may have to raise interest rates in the coming months to bring it down. Speaking at the Fed’s annual conference at Jackson Hole, Wyoming, Warsh said recent U.S. data show inflation has cooled a bit, but “they do not tell me that underlying trends have meaningfully improved.” He added, “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”
That “work” lands on borrowers, renters, and anyone already squeezed by prices that don’t wait for central bankers to finish talking. The AP said Warsh’s remarks do not necessarily signal a rate hike at the Fed’s Sept. 15-16 meeting, but they do indicate rates may not be high enough to bring inflation down to the Fed’s 2% target. The people at the bottom get the bill either way.
What the Numbers Say
The AP said the PCE index is running hotter than the CPI partly because it puts much less weight on rental costs, which have been cooling steadily in recent months. That detail matters because the official machinery can shuffle weights and categories all it wants, but Americans are still dealing with higher costs in the real world.
Americans’ confidence in the economy declined again in August as the ongoing conflict in Iran continued to push U.S. gasoline prices above $4 per gallon. The Conference Board said Tuesday that its consumer confidence index dipped to 89.4 in August from 90.2 in July, the lowest level in seven months. Respondents’ views of their present situation improved, but their short-term outlook soured. The present may look slightly less awful from one desk in one boardroom. The future still looks worse to the people living through it.
The U.S. economy grew at a sluggish 1.5% pace from April through June, down from 2.1% in the first quarter, the Commerce Department reported Wednesday. Imports rose at a 12.5% annual pace and sliced 1.64 percentage points off second-quarter growth. The AP said consumer spending stayed strong. That’s the old story: people keep spending because they have to, not because the system is generous.
Higher Costs, Lower Leverage
Mortgage rates also rose. Freddie Mac said the benchmark 30-year fixed-rate mortgage edged up to 6.66% from 6.65% last week, compared with 6.56% a year ago. The average rate for 15-year fixed-rate mortgages rose to 5.98% from 5.95% last week, compared with 5.69% a year ago. The AP said higher mortgage rates can add hundreds of dollars a month in costs for borrowers and limit homebuyers’ purchasing power.
That’s hierarchy in plain numbers. The people trying to buy a home face tighter limits while the institutions that set the terms talk about “objectives” and “sufficient speed.”
Jobless claims slipped to 203,000 last week from a revised 207,000 the week before, the Labor Department said Thursday. The four-week average ticked up slightly to 205,500. The AP said claims have mostly been in a historically low range of around 200,000 to 230,000 a week for the past year. Low claims don’t erase the pressure elsewhere. They just mean the machinery is still running without breaking down completely.
Wall Street held relatively steady Friday, with the S&P 500, Dow Jones Industrial Average and Nasdaq composite all rising. The bond market reacted more strongly to Warsh’s speech, with expectations building that the Fed may hike rates soon to get inflation under control. The markets got their signal. Everyone else gets to live with the consequences.