Washington, August 29, 2025 — New data shows U.S. inflation held mostly steady in July, offering a mixed picture for the economy as policymakers weigh the timing of possible interest rate cuts.
The government’s preferred gauge, the Personal Consumption Expenditures (PCE) index, revealed that headline inflation rose 2.6% over the past year, unchanged from June. However, core inflation, which excludes food and energy costs, ticked up to 2.9%, slightly higher than the previous month.
On a month-to-month basis, overall prices increased 0.2%, while core prices climbed 0.3% for the second straight month.
Consumers Keep Spending
Despite lingering price pressures, American households continued to show resilience. Consumer spending rose 0.5% in July, the strongest gain in four months, driven by purchases of services, durable goods, and travel. Personal incomes also rose by 0.4%, boosted by higher wages and salaries.
Fed Faces a Delicate Decision
The Federal Reserve has signaled that interest rate cuts could be on the horizon, but the latest data complicates the outlook. While headline inflation suggests cooling, the uptick in core prices points to ongoing underlying pressures.
Financial markets are closely watching whether the Fed will move forward with a quarter-point rate cut in September, as many investors expect. Analysts say upcoming labor market reports and consumer price index data will be crucial in shaping the decision.
What It Means
- Inflation: Holding steady overall, but sticky in key categories like housing and services.
- Spending: Consumers remain active, helping sustain growth.
- Policy: The Federal Reserve faces a balancing act—supporting growth without reigniting inflation.
For now, the economy shows signs of stability, but the slight rise in core inflation serves as a reminder that the path to lower prices may not be smooth.
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