PRIMER - US PCE inflation data is due at 13:30BST/08:30EDT

• The consensus expects headline PCE prices to rise by +0.1% M/M in July (prev. -0.1%), with the annual rate expected to tick down to 3.6% Y/Y (prev. 3.7%); the core measure is seen rising by +0.2% M/M (prev. 0.1%), with the annual rate of core PCE seen unchanged at 3.3% Y/Y.
• In July, headline CPI rose by +0.1% M/M (prev. -0.4%), with the annual rate slipping to 3.4% Y/Y (prev. 3.5%); the core CPI metric printed +0.2% M/M (prev. 0.0%), with the annual core rate down one-tenth to 2.5% Y/Y. Meanwhile, headline PPI was unchanged in July (prev. -0.3%), with the annual rate dropping to 4.7% Y/Y from 5.5%; the core PPI measure rose +0.2% M/M, missing expectations for +0.3%, while the annual rate fell to 4.2% Y/Y from 4.7%.
• Writing after the CPI and PPI reports, WSJ Fedwatcher Nick Timiraos said that most forecasters were looking for a July core PCE reading of 0.22% M/M, and 3.3% Y/Y, adding that this would imply ‘no wedge’ with the July core CPI (also +0.22%); he noted that portfolio management fees are making a meaningful contribution to the core PCE measure in July.
• The data will be key in helping to shape expectations for the September FOMC meeting, where pricing for a rate hike has diminished following downside surprises in the latest jobs data, cooling inflation metrics, weak retail sales and a GDP miss. At the time of writing, markets are pricing a 65% probability of a hold vs 50/50 before the July data releases.
• However, traders may keep some powder dry ahead of Fed Chair Warsh’s appearance at Jackson Hole towards the end of the week.

PCE is the Fed's stated gauge, and its late-month arrival after CPI and PPI means the surprise content is typically compressed: by the time it prints, the translator models have largely converged, so the outsized moves come when it breaks from the CPI-implied path rather than when it confirms. The recurring wedge episodes are worth bearing in mind: portfolio management fees, healthcare components sourced from PPI, and the different weighting of shelter mean PCE can deviate from CPI even when the underlying impulse is identical, and in past cycles these divergence prints have whipsawed the front end before the mix was digested. The distinction that matters for positioning is between a print that shifts the distribution for the imminent meeting and one that shifts the terminal path: a soft core monthly tends to lift odds of a hold at the near date first, with the curve's level only moving if the run-rate is read as durable. A primer of this kind, flagging consensus, component mechanics and the linkage to the upcoming FOMC, signals that desk focus is on the reaction function rather than the level itself. The follow-ons are the calendar items already named: subsequent labour data and the chair's Jackson Hole appearance, which in past cycles has been used to front-run or refine the reaction function ahead of meetings where the decision was finely balanced. Where pricing sits close to a coin flip on the next meeting, the two-sided risk around a confirming print is usually modest and the repricing concentrates on any miss in either direction.