NEWS

Consumer spending in the United States rose in July, highlighting the resilience of American households despite persistent economic headwinds. At the same time, official data showed a pickup in core inflation, largely driven by higher prices of certain goods following the introduction of new import tariffs. Analysts, however, believe these developments will not stop the Federal Reserve from moving forward with an expected interest rate cut in September, as signs of a slowing labor market and rising growth risks continue to build.

According to the Commerce Department, the Personal Consumption Expenditures (PCE) price index – the Fed’s preferred inflation gauge – recorded an annual increase of 2.9% in July, compared to 2.8% in June. On a monthly basis, core PCE rose 0.3%, in line with market expectations. The overall PCE index, which includes food and energy, registered a 2.6% year-on-year increase, with a monthly gain of 0.2%. These figures indicate that inflation remains above the Fed’s 2% target, underscoring the difficult balancing act between curbing prices and sustaining economic growth.

Weakening job market raises concerns

Recent labor market data suggests that hiring momentum has cooled considerably. Average job gains over the past three months stood at just 35,000, compared to more than 120,000 during the same period in 2024. At the same time, consumer surveys showed a rising share of Americans describing jobs as “hard to get,” reflecting mounting uncertainty across both households and businesses.

For the Federal Reserve, these signals are critical. Policymakers are facing growing pressure to cut rates to support the economy, but they remain wary of doing so too aggressively amid still-stubborn inflation. In recent remarks, the Fed chair acknowledged that a rate cut is likely in September, but warned that inflation risks remain significant and must not be underestimated.

Tariff impact and inflation outlook

The effect of import tariffs on prices has not yet fully materialized, as many firms continue to sell from inventories built before the tariffs were enacted. However, economists expect this to change soon. Sectors such as retail and autos have already flagged rising costs, warning that consumers may ultimately bear the brunt of these increases in the coming quarters.

According to analysts at Point Trader Group, markets are carefully weighing how the Fed will navigate this complex environment. While a rate cut could provide relief to businesses and households, it also carries the risk of fueling another wave of inflation if implemented prematurely. As a result, policymakers are expected to adopt a cautious stance, closely monitoring both inflation dynamics and labor market conditions.

Market reactions

Financial markets quickly reflected the latest economic signals. US stock futures moved lower following the release of the inflation data, with investors showing signs of concern about the Fed’s next steps. Meanwhile, gold prices edged slightly lower as the US dollar strengthened, though the precious metal continues to hold its position as a safe-haven asset in times of uncertainty.

These moves underscore the fragile sentiment across global markets. Investors are increasingly aware that the Fed’s policy decisions will not only shape the outlook for the US economy but also have far-reaching implications for global equities, currencies, and commodities.

Conclusion

The US economy currently stands at a crossroads: inflation remains above target, the labor market is weakening, yet consumer spending is still holding up. With the next Federal Reserve policy meeting approaching, the central challenge is to strike the right balance between stabilizing prices and sustaining growth without tipping the economy into a recession.

In this context, insights provided by Point Trader Group are especially valuable, offering a deeper understanding of how markets are likely to respond to the Fed’s actions. As September approaches, all eyes will remain on the Federal Reserve’s decision – one that could shape not just the trajectory of the US economy, but also the direction of global markets in the months ahead.