US inflation holds at 3.7% as Fed weighs rate hike

US inflation remained stubbornly high in July, with the PCE price index rising 3.7% year-over-year, unchanged from June and above the Fed's 2% target. Core inflation, excluding food and energy, held at 3.3% annually. The data, released Wednesday by the Bureau of Economic Analysis, shows persistent price pressures despite a moderate economic expansion of 1.5% in the second quarter. Source: La República Source: Clarin Source: Infobae

Inflation drivers

The persistence of inflation is attributed to several factors. The war with Iran, which began in late February, disrupted about a fifth of global oil supply, pushing energy prices up sharply. Additionally, tariffs imposed by President Trump in April 2025 have raised costs for imported goods. While gasoline prices fell 2.7% in July, they have since rebounded, likely pushing inflation higher in coming months. Source: Clarin Source: La República

Fed's dilemma

The report intensifies the debate within the Federal Reserve. Futures markets now price a 42% probability of a rate hike at the September 15-16 meeting, up from 36% before the data. Fed officials are divided: some favor holding rates steady to see if inflation cools on its own, while others support raising rates to curb spending. New Fed Chair Kevin Warsh is scheduled to speak at Jackson Hole on Friday, and investors will scrutinize his remarks for clues. Source: La República Source: Clarin Source: Infobae

Consumer impact

Despite solid consumer spending in the second quarter, inflation-adjusted spending was flat in July. Real incomes rose 0.4% in July, the best gain since February, but over the past year they have barely kept pace with inflation. High prices are becoming a key issue in the midterm elections, now just 10 weeks away. Source: Clarin