PCE is showing signs of resurgence again, and the year-end rate expectations of 3.8% are even higher than in March; the soft-landing script is getting harder to write.

The Federal Reserve’s July report says inflation rose again: in May, total PCE year-over-year was 4.1% and core PCE was 3.4%; tariffs, Middle East energy, and AI-related demand lifted prices. In June, the unemployment rate was 4.2%, and first-quarter GDP annualized grew 2.1%. Since the start of the year, the FOMC has kept interest rates at 3.5%—3.75%, emphasizing achieving price stability. The outlook shows PCE and core PCE inflation in 2026 at 3.6% and 3.3%, respectively; the median year-end interest rate is 3.8%, higher than the March forecast.