CPI Holds Near 332 as M2 Shrinks: What Fed Policy Means for Inflation

Consumer prices rose to 332.8 in July, up 0.8% from a year earlier, while the money supply contracted for the fourth consecutive monthly decline. The Federal Reserve faces a policy dilemma: inflation remains elevated even as liquidity tightens. This divergence matters because it suggests rate cuts may remain off the table longer than markets expect.

Key Takeaways CPI climbed to 332.8 in July, a 0.8% increase from July 2025, according to BLS data. M2 money supply fell 2.3% year-over-year to $23.2 trillion, the fourth consecutive monthly decline. The Federal Funds rate held at 3.63% in August, with the 10-year yield at 4.75%. The yield curve remains positively sloped at +40 basis points (10Y mi…