Fed Holds as Sticky Core Inflation Meets Hormuz Oil Shock

Headline CPI cooled to 3.30% year over year in July, down from 3.46% in June, and core CPI eased to 2.47% from 2.57%, according to Bureau of Labor Statistics data released August 12 and reflected in FRED series CPIAUCSL and CPILFESL. That is a genuine deceleration on paper, and it gives the Federal Reserve cover to hold rates again in September. But the Fed's preferred inflation gauge tells a less comfortable story: core PCE ran 3.29% year over year in June, per FRED series PCEPILFE, more than a full percentage point above the 2% target with no clean glide path visible in the data.

The mechanism behind the gap between the two inflation readings is worth sitting with. Omair Sharif of Inflation…