According to CNBC, U.S. GDP grew at 1.5% annualized in Q2, down from 2.1% in Q1 and below forecasts. June core PCE inflation, the Fed's preferred gauge, ticked up 0.1% monthly and held at 3.3% year-over-year—well above the Fed's 2% target.
Growth is softening but inflation won't budge. The Fed can't cut rates without looking reckless, and it can't hold steady without crushing demand further. Borrowers, employers, and markets all stay frozen waiting for relief that may not come soon.
This report narrows the Fed's runway to nothing. Weak growth alone would justify rate cuts. Sticky inflation alone would justify holding. Together they force the Fed to choose between two bad outcomes: let the economy slow further or let inflation stay elevated. Markets have priced in cuts that now look unlikely, and that repricing will be ugly.
Filed to the World desk · Jul 30