WASHINGTON — The Commerce Department said Wednesday that its personal consumption expenditures price index rose 3.7 percent in July from a year earlier, unchanged from June and above the 3.6 percent pace economists polled by LSEG had forecast, extending a stretch of above-target inflation that traders now expect to weigh on the Federal Reserve when it meets Sept. 15-16.

The report is the last major inflation reading before Fed Chair Kevin Warsh delivers his first Jackson Hole keynote on Friday. Core PCE, which strips out food and energy, also held at 3.3 percent, one-tenth of a point above the FactSet consensus. Both figures sit well above the central bank's 2 percent long-run target.

What the print showed

Headline PCE rose 0.2 percent from June, twice the 0.1 percent monthly gain analysts had penciled in. Goods prices fell 0.6 percent on the month but remain 1.3 percent higher than a year ago, while services prices climbed 0.3 percent and are up 2.5 percent from July 2025. Consumer spending on goods dropped $49.9 billion; spending on services rose $86.2 billion.

A separate Commerce Department release left second-quarter gross domestic product growth unrevised at 1.5 percent, in line with the department's first estimate. The personal savings rate ticked up to 3 percent from 2.6 percent in June, the highest reading since March.

Wall Street's read

Stocks barely moved — the S&P 500 was up 0.02 percent, the Dow Jones Industrial Average down 0.05 percent and the Nasdaq Composite off 0.17 percent in early trading — but rate-hike expectations shifted. The CME FedWatch tool put the odds of a 25-basis-point hike at the September meeting at 40.1 percent, up from 33.1 percent a week ago, and cut the probability of a hold to 59.9 percent from 66.9 percent.

"The United States still has an inflation problem. PCE inflation came in hotter than expected," said Heather Long, chief economist at Navy Federal Credit Union. Long pointed to "$4 gas and $5.60 diesel" tied to the war in Iran and said, "A trade war with Canada will only exacerbate inflation woes."

The Fed calculus

Bret Kenwell, U.S. investment analyst at eToro, said a hotter-than-expected reading "could renew pressure on policymakers to keep interest rates higher for longer." Minneapolis Fed President Neel Kashkari has publicly urged the central bank to raise rates now to avoid what he has called an “entrenched inflation problem,” one of several Federal Reserve officials who have signaled they are open to a hike.

The other view

A more optimistic read came from Jeffrey Roach, chief economist at LPL Financial, who said in a statement that "An inflection point may be approaching" and that retailer tariff rebates could pull core inflation below 3 percent as soon as October. "If geopolitical tensions ease in the near term, core inflation could fall below 3%, giving investors a reason for optimism," Roach said.

Warsh addresses the Kansas City Fed's Jackson Hole conference on Friday. The Federal Open Market Committee next meets Sept. 15-16, with the benchmark federal funds rate at 3.5 percent to 3.75 percent.