US Inflation Holds at 3.7% as Treasury Increases Bond Buybacks

The U.S. Department of Commerce reported that the personal consumption expenditures (PCE) price index remained at 3.7% in July, matching June's figure and exceeding economist expectations of 3.6%. Core inflation, which excludes food and energy, remained unchanged at 3.3% annually. While gas and other goods prices declined 0.6% monthly, these gains were offset by a 0.3% increase in services costs, particularly in healthcare and utilities.

Economic growth slowed in the second quarter, with GDP growth decelerating to 1.5%. This decline was driven by a 12.5% surge in imports for AI infrastructure, despite a 3.4% increase in consumer spending. The personal savings rate rose slightly to 3% in July from 2.6% in June. Analysts noted that geopolitical tensions, including the war in Iran and potential trade conflicts with Canada, continue to pressure energy costs.

In response to persistent inflation and rising long-term interest rates, Treasury Secretary Scott Bessent announced the Treasury will double its buybacks of longer-term bonds starting next month to lower yields. Meanwhile, the Commerce Department plans to adjust its PCE calculation methods next month, which may lower measured inflation. Federal Reserve Chair Kevin Warsh is scheduled to speak in Jackson Hole, Wyoming, this Friday to provide clarity on future monetary policy as the central bank struggles to reach its 2% inflation target.