US inflation rose in line with economist expectations in July, but will keep the Fed under pressure as it holds above target, with markets increasingly focused on what analysts have described as an unusually unclear communication style from the Fed's new chair.
US July's Inflation Print Keeps the Pressure on the Fed
12 August 2026 - 13:53 UTC
The Consumer Price Index (CPI) increased at an annual rate of 3.4% in July, according to the Bureau of Labor Statistics, down from 3.5% in June and in line with economist expectations. On a monthly basis, CPI rose 0.1%, also in line with forecasts.
Core CPI, which excludes the most volatile food and energy components, came in at 2.5%, in line with consensus forecasts.
Chart
Policy implications
The data release will have a significant impact on near-term decisions by the Federal Open Market Committee (FOMC), as inflation lingers above the Fed's 2% target and the US economy continues to absorb the effects of the war with Iran, which drove annual inflation as high as 4.2% in May through higher energy prices. Peace talks have since progressed, though negotiations remain unsettled, and energy-driven price pressure has eased over the past two months.
Fed Chair Kevin Warsh privately signalled to the Financial Times that he would be prepared to support a rate increase at September's meeting if incoming inflation data runs hotter than expected, the paper reported last week, citing people familiar with his thinking.
That signal came after long-dated Treasury yields spiked during Warsh's press conference following the Fed's 29 July meeting, which analysts widely described as muddled; several said the episode had called his communication style, and by extension his credibility, into question.
The data keeps the Fed under pressure to consider a rate rise this year, having made little headway in bringing inflation down. At its last meeting, the Committee voted 9-3 to hold its target range at 3.50% to 3.75%.
Market's reaction
The market's reaction was muted after the data was released. S&P 500 futures were up 0.4% and Bitcoin (BTC) was up 0.8% to around $64,000 after the release. The benchmark US 10-year Treasury bond yield was flat at 4.645% on the day.
Before the data release, CME FedWatch target rate probabilities based on futures contracts indicated a 54% chance of no rate change and a 46% probability of a hike. The probabilities were little changed after the data release.
The Fed is holding its next rate-setting meeting on 15-16 Sep.
