· Event impact
Fed July Forecast: Headline Inflation Falls to 3.49% as Core PCE Projects Rise
Transmission path
Higher for longer rate expectations via sticky core services inflation despite energy-driven headline relief.
Market mechanism
Higher for longer rate expectations via sticky core services inflation despite energy-driven headline relief.
Extended read
The divergence between headline and core inflation creates a policy dilemma. While U.S.-Iran peace talks have successfully lowered the energy component of the CPI, the 3.47% Core PCE projection indicates that previous energy shocks have already been baked into the broader economy. This 'sinister' detail suggests that the Federal Reserve may be forced to maintain a restrictive stance even as the public sees relief at the pump, potentially leading to a hawkish surprise in upcoming policy communications.
Exposed assets
ONEQ
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