Inflation above the target and incomes/spending solid for July.

With a Fed meeting looming in less than 3 weeks, the financial news was especially interested in the inflation part of today's income and spending report.

The personal consumption expenditures price index showed that core inflation, which excludes food and energy costs, ran at a 2.9% seasonally adjusted annual rate, according to a Commerce Department report Friday. That was up 0.1 percentage point from the June level and the highest annual rate since February, though in line with the Dow Jones consensus forecast.

On a monthly basis, the core PCE index increased 0.3%, also in line with expectations. The all-items index showed the annual rate at 2.6% and the monthly gain at 0.2%, also hitting the consensus outlook.

Not bad, not great. Pretty much what we’ve been seeing in the last few months, tariffs or no tariffs (which doesn’t make much sense that the tariffs haven't changed inflation, but costs for businesses didn’t spike until July). While it’s above the magic 2% mark that we keep hearing that the Fed wants inflation to be at, a 2.5%-3% isn’t a major price increase that handcuffs the overall economy to me.

The same report also showed that the 2/3 of the US economy based on consumer spending kept moving along in July, and income growth continued at a decent pace.

Along with the inflation moves, consumer spending increased 0.5% on the month, in line with forecasts and indicative of strength despite the higher prices. Personal income accelerated 0.4%, rounding out a report that saw all figures hit the consensus outlook.

Stock market futures remained negative after the release while Treasury yields held gains.

But the decline was a relatively small 92 points on the DOW, and it was a decent start to Q3 in the real economy. That said, I will caveat that more than ½ of the consumer spending growth in July can be chalked up to untariffed auto sales and finance/insurance.

But with consumer spending and incomes slightly above the rate of inflation, and the biggest increase in employee compensation in 8 months, which indicates an economy that was still in expansion mode last month.

That data came a day after a revision to Q2’s GDP report which indicated stronger economic growth in Spring time than we thought - up to 3.3% from the original report of 3.0%.

The U.S. economy grew faster than initially thought in the second quarter, in part driven by business investment in intellectual property such as artificial intelligence, but tariffs on imports continued to cloud the picture.

The upgrade to gross domestic product reported by the Commerce Department on Thursday also reflected upward revisions to consumer spending as well as business investment in equipment. That resulted in a measure of underlying domestic demand also being revised higher….

The GDP revision reflected upgrades to business spending on intellectual property products, now estimated to have expanded at a 12.8% rate, double the initially estimated 6.4% pace and the fastest in four years.

Growth in business investment in equipment was revised up to a 7.4% pace from the 4.8% rate estimated last month.

But let’s also remember that most of that Q2 GDP growth was due to the unwinding of Q1’s Great Import Surge to get ahead of those tariffs. "Regular”, private-sector growth still went down last quarter, although the revisions lessened that decline.

That chart doesn’t mention that 1/3 of that remaining growth was in “software investment”, which reiterates that a lot of our economy is stagnant, and that it won’t take much for several sectors to fall into recession.

But an overall recession doesn't seem to have happened in July, based on the data we've been seeing. And if the Fed hadn't been so set on cutting rates in September, you'd wonder why they would do that, unless the Fed knows that last month's good economic data is the last positive one that we will see for a while. At least in the real world.