In line

Yesterday, the Bureau of Economic Analisys, publsked the PCE, the Fed’s favorite measure of inflation. The headline number showed a 2.6% increase and the core, 2.9%, both matching expectations, but putting doubts on the table again on the Fed’s ability to cut rates when the preferred inflation metric is almost 50% above target. Looking under the hood, part of the increase was related to investment services, which has to do with the equity market rally, which is inflation after all, but unrelated to tariffs, which would have been a bigger concern. Markets yesterday closed flat, and bond yields showed small upticks. The probability of a rate cut in September went up 2%, and remains above 80%, which indicates that the words on Powell speech at Jackson Hole and the president’s pressure on the Fed weigh more than the PCE. Perhaps the key number to watch now is unemployment, to be published next Friday. If the number is bad (higher unemployment) Powell can justify the cut. If it’s good, he’s in trouble.

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