Key inflation gauge falls while economic growth slows but the Fed could still raise rates

A key inflation gauge fell for the first time in six years while the economy grew at a weaker pace than expected, which would give the Fed more room to keep interest rates on hold – but the new stats could be just a temporary blip in the data.The Personal Consumption Expenditures (PCE) price index rose 3.7% in June over the past 12 months – falling below the 4.1% level from the previous month, the Bureau of Economic Analysis said Thursday.Core PCE – the Fed’s preferred inflation gauge, which excludes volatile food and energy prices – increased 3.3% on an annualized basis, up 0.1% from the previous month.But the data is largely backward-looking, since much of the decline is due to a 9% drop in energy and gasoline prices in June after the US and Iran signed a temporary ceasefire agreement.That deal has since fallen apart, with the US on Thursday announcing the launch of “a heavy wave of strikes” against Iran in response to surprise attacks on US forces in Jordan, which were successfully intercepted.Tehran has threatened further escalation.National average gasoline prices have shot back above $4 a gallon, according to AAA, and reports of attacks in the Red Sea are threatening to compromise a second critical maritime trade route in the Middle East – potentially worsening global energy supply disruptions.Nic Puckrin, a markets expert and former Goldman Sachs analyst, said the PCE report won’t be enough to sway the Fed – especially after Chair Kevin Warsh delivered a “hawkish hold” Wednesday, keeping interest rates steady while emphasizing the need to lower inflation.

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“Warsh made it clear that one good print won’t change the trajectory of monetary policy.Plus, three of his colleagues voted ...