Continued inflationary pressure in the United States in July, adding variables to the Federal Reserve's policy direction
The data released by the US Department of Commerce on August 26 shows that the year-on-year increase in the US Personal Consumer Price Index and Core Consumer Price Index in July remained the same as the previous month, significantly higher than the Federal Reserve's 2% target, indicating continued inflationary pressure in the United States.
The preliminary survey results released by the World Federation of Large Enterprises, a research institution in the United States, on August 25th showed that the US consumer confidence index in August was 89.4, lower than the revised 90.2 in July, marking the second consecutive month of decline, reflecting that American consumers have become more pessimistic about future expectations.
What are the factors causing sustained inflationary pressure in the United States?
How will July inflation data affect the future direction of the Federal Reserve's monetary policy?
Consumer confidence index continues to decline, inflationary pressure persists, what are the problems in the US economy?
The "Flash Review" column of Global News invites Wang Ruibin, Director of the Institute of World Economy and Development at the China Academy of International Studies, to provide a detailed interpretation.
Wang Ruibin, Director of the Institute of World Economy and Development at the China Academy of International Studies, believes that:
Energy prices are at a high level to support inflation: The US Iran conflict that erupted at the end of February directly drove global oil and refined oil prices to soar sharply, although they briefly fell midway, the overall level is still far higher than the same period last year. The high prices of gasoline and diesel have pushed up transportation and related commodity costs. After a transmission lag period, the effect of rising prices has recently become concentrated.
Service industry prices continue to rise: In July 2026, the overall service prices in the United States increased by 0.3% month on month, with prices for segmented services such as healthcare, finance, childcare and elderly care, and insurance generally rising. The labor shortage in the service industry in the United States, coupled with population aging and immigration policy adjustments, makes it difficult to significantly improve the supply-demand imbalance in the short term.
Tariff friction drives up commodity prices: The United States has imposed widespread tariffs since last year, continuously pushing up domestic commodity prices. The price impact of early tariff measures is still continuing in the current price system. Recently, there have been setbacks in tariff negotiations between the United States and economies such as Canada, further supporting the high prices of American goods.
In addition, the sustained investment boom in the field of artificial intelligence has driven the construction of AI infrastructure such as data centers, and a large amount of related capital expenditures have pushed up the prices of electronic products such as semiconductors, storage chips, servers, and computers. At the same time, the significant increase in electricity demand brought about by the AI industry further increases the upward pressure on overall energy prices, jointly driving the inflation level in the United States from both the supply and demand sides.
The Federal Reserve's monetary policy adds another variable
The current benchmark interest rate target range of the Federal Reserve remains at 3.5% to 3.75%, and the next interest rate meeting will be held in mid September. According to foreign media reports, the latest data released by the US Department of Commerce shows that Federal Reserve decision-makers are facing a tricky situation at next month's meeting. What impact will the current inflation level have on the future monetary policy of the Federal Reserve? Wang Ruibin said:
Currently, the Federal Reserve Chairman has abandoned the traditional forward guidance communication method and only repeatedly emphasized that the core policy goal is still to maintain a 2% inflation level. If the current interest rate remains unchanged for a long time, the market may form an expectation that the Federal Reserve will accept inflation of more than 3%, which will force policy adjustments.
Based on the unexpected employment data and marginal changes in CPI in July, some institutions estimate that the probability of the Federal Reserve raising interest rates in September is 32% to 44%. The Chairman of the Federal Reserve has made it clear that unless inflation rebounds significantly, the probability of a rate hike in September is not high. The possibility of interest rate adjustment will increase after September.
The sustained high inflation has greatly increased the difficulty of balancing the Federal Reserve's policies, and the market's discussion on interest rate hikes has become more heated. The tendency of the Federal Reserve to tighten monetary policy has significantly increased, but the final decision has not yet been fully implemented.
Wang Ruibin said that the current US economy is no longer able to directly stimulate consumption expansion through tightening monetary policy. Although there will be no economic collapse in the short term, its sensitivity to various sudden shocks has significantly increased.
The inflation rate in the United States has been higher than the Federal Reserve's target of 2% for five years, and the growth rate of residents' real disposable income has declined. Low - and middle-income households have begun to reduce non essential expenditures, and the impact of inflation on those with weaker buffering capacity is continuing to accumulate.
Currently, the GDP of the United States has not shown a significant contraction, mainly driven by the consumption of high-income groups, capital market conditions, and AI related investments, forming a significant contrast with the actual living experience of ordinary people.
The overall labor market is still acceptable, but the margin is weakening. The adjustment of immigration policies has lowered the labor participation rate, and the trend of labor supply growth has significantly slowed down. The current labor market is no longer able to clearly support the sustained expansion of household consumption expenditure.
The benchmark interest rate of the Federal Reserve remains at a high level of 3.5% to 3.75%, coupled with high inflation, fiscal deficit, and short-term surge in debt in the AI sector, long-term interest rates in the United States have risen. The current Federal Reserve is caught in a dilemma of "high inflation difficult to fall back, and the economy showing signs of weakness", and the decision to raise interest rates is extremely cautious.
External factors such as the Middle East conflict, tariff frictions, and disruptions in the North American supply chain have been directly transmitted from "remote news" to people's livelihoods. Even if energy prices briefly fall in the future, it will still take a long time for US residents' consumer confidence to recover.