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Washington, United States – The Federal Reserve, in its semi-annual Monetary Policy Report to Congress released on Friday, July 11, reported that US inflation has re-accelerated and pledged to act forcefully to restore price stability. The central bank said its preferred gauge, the Personal Consumption Expenditures (PCE) index, climbed 1.6 percentage points over the past year, rising from 2.5% to 4.1%, while core PCE, which excludes food and energy, increased from 2.8% to 3.4%. The report marks a clear reversal from the Fed’s June 2025 assessment that inflation was “continuing to slow,” stating instead that price pressures began to heat up at the end of last year and jumped further in March. Policymakers identified three main drivers of persistent inflationary pressure: energy supply disruptions linked to the Middle East conflict and the Strait of Hormuz, the continued pass-through of earlier tariffs into consumer prices, and surging demand for AI-related infrastructure that has pushed up costs for chips, electronics and industrial materials. Washington, United States – The report also highlighted that rapid AI investment has emerged as a key engine of US economic growth even as it contributes to higher prices. Business fixed investment expanded at an 11% annualized rate in the first quarter of 2026, helping lift overall GDP growth to a 2.1% annual pace. The labor market remained broadly stable, with the unemployment rate at 4.2% in June, near historic lows, although labor supply growth has slowed due to reduced immigration and demographic trends. The Fed signaled a tougher policy stance, sharply elevating its focus on “price stability,” a phrase that appears 14 times in the new report compared with five in the previous year. It removed earlier references to “waiting for more clarity” and deleted language on “average inflation targeting” and “compensatory overshoot” from its longer-term strategy, stating instead that “the Committee will deliver price stability” and is prepared to act “forcefully” to keep long-term inflation expectations anchored ahead of Fed Chair Kevin Warsh’s testimony before Congress next week.

Prepared by Christopher Adams and reviewed by editorial team.