WASHINGTON — U.S. inflation data due this week is set to help determine whether the Federal Reserve keeps interest rates on hold, raises them or begins considering cuts, after recent economic reports have presented policymakers with conflicting signals.
The Labor Department is scheduled to release July consumer price data on Wednesday, with the report expected to provide the first detailed look at underlying price pressures since the Fed held its benchmark interest rate steady on July 29. The Fed has maintained its federal funds target range at 3.5% to 3.75% since the start of the year.
June data showed core consumer prices, which exclude food and energy, rose 2.6% from a year earlier, while the overall consumer price index increased 3.5%, according to the Bureau of Labor Statistics. The July CPI report is scheduled for release on Aug. 12.
The Fed's preferred inflation gauge also showed persistent pressure, although the latest reading was more moderate. The Commerce Department reported on July 30 that the personal consumption expenditures price index excluding food and energy rose 3.3% in June from a year earlier, while the overall PCE index rose 3.7%. On a monthly basis, core PCE increased 0.1%.
At its July meeting, the Federal Open Market Committee said inflation remained elevated relative to its 2% target. Three policymakers — Beth Hammack, Neel Kashkari and Lorie Logan — dissented in favor of a quarter-point rate increase, while the majority voted to keep rates unchanged.
The inflation outlook is being weighed against a weakening labor market. U.S. employers cut 23,000 jobs in July, according to the Bureau of Labor Statistics, while the unemployment rate fell to 4.1%. Payroll gains for May and June were revised down by a combined 103,000, further clouding the employment picture.
The competing signals leave the Fed facing a policy trade-off. Inflation remains above its target and could be reinforced by supply shocks, while softer employment growth could increase pressure to avoid further tightening. The Fed's July monetary policy report said economic activity was expanding at a solid pace but noted elevated uncertainty and inflation above the 2% objective.
Investors will focus on the July CPI report for evidence of whether underlying inflation is accelerating or easing. The next scheduled FOMC meeting is in September, giving policymakers additional economic data to assess before deciding their next move.
