Inflation measure closely watched by Fed shows 3.7% year-over-year rise in July

Warsh set for first Jackson Hole speech as Fed chair Friday

WASHINGTON — Prices rose 3.7% in July compared with a year earlier, according to a Commerce Department report released Wednesday, leaving the inflation measure closely watched by the Federal Reserve unchanged from the prior month and noticeably above the central bank’s 2% target.

The persistent inflation reflects pressure from the Iran war, new tariff threats from President Donald Trump, and heavy spending on AI infrastructure that has pushed up the cost of computers, gaming consoles, and semiconductors.

Wednesday’s report is unlikely to fully resolve a split at the Federal Reserve. Most officials have signaled willingness to hold interest rates steady to see whether inflation cools on its own, while many others have backed raising rates to slow borrowing and spending.

New Fed Chair Kevin Warsh is scheduled to deliver a closely watched address Friday at the annual Jackson Hole symposium in Wyoming. Wall Street will parse the speech for any indication of his thinking on the path of monetary policy.

The July reading marks a continuation of inflation’s rise since the Iran war began in late February, when the year-over-year rate stood at 2.9%. The Iran conflict has kept gas prices high, feeding into transportation costs across the economy.

Beyond energy, two other pressures are shaping the inflation outlook: Trump’s threats of new tariffs on Canada and China, which could raise import costs, and the heavy spending on AI infrastructure that has pushed up costs for computers, gaming consoles, and semiconductors.

The midterm political stakes are significant. With inflation running noticeably above the Fed’s target, the cost-of-living pressure on households has become a defining feature of the campaign environment, even as other economic indicators have moved in mixed directions.

Inside the Fed, the debate over whether to hold rates steady or raise them reflects a tension between allowing more time for inflation to recede and acting more aggressively to prevent expectations of higher prices from becoming entrenched. Warsh, who took over as chair recently, will deliver his first major policy speech in the spotlight at Jackson Hole.