Look Ahead Inflation Numbers Do Not Support a Fed Pause in September

Today’s CPI report is history. Let’s look ahead.

The lead chart shows reported CPI and PCE year-over-year numbers plus the Cleveland Fed Inflation Nowcast.

CPI and PCE Measures Plus Nowcast

• CPI July: 3.36 percent
• Core CPI July: 2.48 percent
• PCE July Nowcast: 3.65 percent
• Core PCE July Nowcast: 3.29 percent
• CPI August Nowcast: 3.34 percent
• Core CPI August: 2.38 percent
• PCE July Nowcast: 3.73 percent
• Core PCE July Nowcast: 3.34 percent

Pay attention to the orange lines. Core PCE, excluding food and energy is the Fed’s preferred measure of inflation.

Core PCE bottomed at 2.61 percent in April of 2025. It is now 3.29 percent and expected to hit 3.29 percent in July and then 3.34 percent in August.

Is the Fed suddenly going to switch to favoring core CPI after touting PCE for decades?

CPI and PCE Month-Over-Month

CPI and PCE Month-Over-Month Projections

• PCE July: 0.15 percent
• Core PCE July: 0.25 percent
• CPI August: 0.35 percent
• Core CPI August: 0.20 percent
• PCE August: 0.34 percent
• PCE CPI August: 0.27 percent

Annualized Rates

• The annualized Core PCE estimate for July is 3.04 percent
• The annualized Core PCE estimate for August is 3.29 percent

These are estimates. However, the inflation nowcasts have been quite good.

PCE Year-Over-Year Plus Projections

Given the Fed’s preferred measure of inflation is the PCE, is the Fed seriously supposed to ignore this?

I don’t know what the Fed will do, nor can I guarantee the above numbers.

But if the numbers come in as expected, Warsh better hike or the bond market will revolt higher on the long end.

30-Year Long Bond Yield

You are free to believe whatever nonsense you want about today’s allegedly great CPI report.

But the bond market does not think it was so great, and neither do I.

For further discussion of today’s CPI report and why it was not as good as the headline numbers suggest, please see July CPI Report Not as Good as Numbers Look at First Glance

The consumer price index rose the expected 0.1 percent, but significant troubles lie ahead.

I discuss three reasons why the CPI was not that great and seven additional look ahead topics.

This look ahead makes eight.