After reading the Fed’s July report, I get one clear impression: three fires are burning at the same time—tariffs, energy, and AI. Inflation is stickier than expected and proving much more stubborn. The median interest rate next year is being raised to 3.8%—the rate-cut schedule the market was pricing in earlier may need to be reassessed.

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.