Markets are still pricing in over a 90% chance the central bank will cut rates by a quarter percentage point come September.<\/p>\n
The Producer Price Index showed prices rose in July by a much stronger-than-expected 0.9%, marking the largest monthly increase in more than three years. Year over year, core prices, which exclude volatile food and energy prices, jumped to 3.7% from 2.6% in June. Expectations were for a jump up to 3%.<\/p>\n
\u201cIf consumer prices don\u2019t accelerate from here, we have a profit margin hit on our hands,\u201d market strategist Peter Boockvar said. \u201cPick your poison.\u201d<\/p>\n
But Luke Tilley, chief economist for Wilmington Trust, doesn\u2019t think PPI changes the story for higher inflation.<\/p>\n
\u201cI think today\u2019s PPI fits the narrative we\u2019ve had all along,\u201d said Tilley. \u201cTariffs are driving up business costs, firms are eating some of the costs and passing some along to consumers. I don\u2019t see a risk of more general inflation because consumers will continue cutting back on services spending.\u201d<\/p>\n
The data will be used in conjunction with the Consumer Price Index to estimate what the Fed\u2019s preferred inflation gauge \u2014 the Personal Consumption Expenditures index (PCE) \u2014 will be.<\/p>\n
Using both data sets, Bank of America economists estimate PCE on a core basis, excluding volatile food and energy prices, rose by 0.3% month over month in July. That would push the year-over-year rate up to 2.9% from 2.8% in June.<\/p>\n
July’s PCE report is due out Aug. 29.<\/p>\n
\u201cThe Fed’s preferred measure of inflation likely moved further away from its 2% target, challenging the market’s conviction for a September cut,\u201d said Stephen Juneau, US economist for Bank of America.<\/p>\n
Tougher task ahead? Federal Reserve Chairman Jerome Powell, speaks during a news conference following the Federal Open Market Committee meeting, Wednesday, July 30, 2025, in Washington. (AP Photo\/Manuel Balce Ceneta) \u00b7 ASSOCIATED PRESS <\/p>\n
Thursday\u2019s report continues the conundrum for the Fed and Chairman Jerome Powell: Increasingly both sides of their dual mandate are coming into potential conflict, ingraining the division of views among members of the Fed.<\/p>\n
Story Continues <\/p>\n
Chicago Fed president Austan Goolsbee cautioned Wednesday<\/a> that if there are more inflation reports that show prices for services are rising, like the CPI report earlier this week, that would be concerning.<\/p>\n “Services are not tied to the tariffs,” he said. “Everyone is hoping that’s just a blip. There’s noise in the data. If you start to get multiple months where the components suggest that the impact of tariff inflation is not staying in its lane, that would be more of a concern.\u201d<\/p>\n Stephen Brown, deputy chief North America economist for Capital Economics, said his estimates suggest that the PCE inflation report will reveal prices of goods on a core basis were essentially unchanged in July, while core services will have risen by 0.4%, the strongest pace in five months.<\/p>\n Wilmington Trust’s Tilley noted that the big jump in PPI reported Thursday was due to services, but comes on the heels of several months of low readings and remains in \u201cvery normal territory.\u201d<\/p>\n Atlanta Fed president Raphael Bostic, who has been more concerned about the risk of inflation from tariffs, said Wednesday that a weaker-than-expected July jobs report raises the risk that the job market may be beginning to weaken and that the central bank doesn\u2019t have as much time to be patient on inflation.<\/p>\n \u201c<\/strong>To me, that’s the question we’re going to try to have an answer [to],\u201d said Bostic. \u201cHow much [have] labor markets weakened such that we shouldn’t feel like we can afford to be patient, and that’s really our task for the next five weeks or so.\u201d<\/p>\n On the other side are members like San Francisco Fed president Mary Daly, who is concerned the job market is moving in the wrong direction. Daly told the Wall Street Journal Thursday that the Fed can\u2019t ignore the softening in the job market.<\/p>\n “Policy is likely to be too restrictive for where the economy is headed. So for me, that calls for recalibration,” she said.<\/p>\n Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms<\/a> and on Instagram<\/a>.<\/p>\n Click here for in-depth analysis of the latest stock market news and events moving stock prices<\/strong><\/a><\/p>\n Read the latest financial and business news from Yahoo Finance<\/strong><\/a><\/p>\n