The Inflation Divergence the Fed Can't Ignore

Episode 140 of The Macro Memo explores the puzzling divergence between the Consumer Price Index, which fell in June, and the Fed's preferred PCE measure, which is ticking up. Lucas and Luna break down the components driving the gap—healthcare prices, financial services, and energy—and discuss why the Fed pays more attention to PCE. With the unemployment rate at 4.2% and jobless claims at a stunning 187,000, the labor market remains tight. Yet the Fed has held rates steady at 3.63% since June. The hosts examine what these conflicting signals mean for the next FOMC meeting, touching on market expectations as breakeven inflation rates decline even as actual core PCE rises. Could the Fed be forced to hike again if PCE accelerates? Or will the cooling CPI give them cover to hold? This episode drills into the data and the Fed's reaction function, offering a clear-eyed look at a critical moment in monetary policy. #Economics #Inflation #CPI #PCE #FederalReserve #FOMC #InterestRates #LaborMarket #Unemployment #JoblessClaims #GDP #BreakevenInflation #MonetaryPolicy #CoreInflation #HealthcareCosts #EconomicData #FexingoBusiness #BusinessPodcast Keep every episode free: buymeacoffee.com/fexingo