The Federal Reserve’s latest report highlights a marked acceleration in inflation this spring, pushing core PCE to 3.4% in May.
The Federal Reserve’s July Monetary Policy Report signals a notable deterioration in inflation, with core PCE rising to 3.4% in May from 2.8% a year earlier. Headline inflation climbed to 4.1% from 2.5%, driven by tariffs, energy shocks, and strong demand for AI-related tech equipment.
Energy prices surged 24% year-over-year, while core goods inflation jumped to 2.4% from 0.6%. Semiconductor and data-center demand pushed up prices for electronics and software. Despite some relief—housing-services inflation slowed to 3.2%—core non-housing services remained firm at 3.9%.
The report’s language underscores the Fed’s shift away from an easing bias, with median projections now targeting a 3.8% fed funds rate by end-2026, up from 3.4% in March.