We get July PCE tomorrow (change in the personal consumption expenditures index).
Remember, the Fed's stated measure for its 2% inflation target is headline PCE (not core PCE, not CPI).
June’s number was 2.6%, and with July CPI and PPI already reported, we should expect little change in tomorrow’s print — likely another 2.6%.
Here's what that looks like relative to the past twenty-four months …
As you can see in the chart above, we're at the top end of this sideways range in PCE of the past year.
It's not 2%. But it's a long way from the 4.33% — the effective Fed Funds rate.
That differential of roughly 1.7 percentage points between the Fed Funds rate and the inflation rate represents "restriction" — downward pressure on the economy.
That said, the second reading in Q2 GDP just came in this morning at annual rate of +3.3%. That's the highest growth in more than two years. And it's above the long-run growth rate of 3.1%.
So, that's above-trend-growth even as the Fed has its foot on the brake, slowing economic activity.
And that above-trend-growth comes prior to any impact from the "big, beautiful bill" which delivers full expensing on capex and R&D — a major tailwind for investment and productivity in the second half of the year.
