Group 1 - The latest inflation data in the U.S. indicates a profound structural divergence in price pressures within the economy, presenting unprecedented challenges for the Federal Reserve's monetary policy [1][2] - In July, the core Personal Consumption Expenditures (PCE) price index accelerated at an annualized rate of 4.4%, marking the third consecutive month of strong momentum, particularly driven by persistent inflation in the service sector [1][2] - In contrast, durable goods prices experienced a monthly decline with an annualized decrease of 1.3%, reflecting the impact of tariffs and consumer resistance to high prices [1][2] Group 2 - The divergence in inflation dynamics highlights the complexity of the U.S. inflation landscape, with service sector inflation, especially in non-housing services, becoming a primary driver of overall price increases [1][2] - The characteristics of the service sector make it more challenging to suppress prices, as many essential services lack transparent price comparison mechanisms and face insufficient market competition [1][2] - Conversely, the durable goods market is experiencing different dynamics, with consumers becoming more price-sensitive due to tightened monetary policy, leading businesses to adopt discounting and promotional strategies to maintain sales [1][2] Group 3 - Despite tariffs being seen as a potential factor for rising goods prices, U.S. companies have accumulated substantial profits over the past few years, providing them with ample capacity to absorb tariff costs, thereby limiting the transmission effect of tariffs on final consumer prices [2] - The Federal Reserve faces a dilemma as its 2% inflation target is continuously challenged by persistent core service sector inflation, with the core PCE price index's annualized growth rate reaching 3.3% in July, significantly above target levels [2] - Overall PCE and core PCE year-on-year growth rates have accelerated for three consecutive months, indicating a worsening inflation situation despite a decline in energy prices, which has had limited impact on core inflation [2] Group 4 - The structural divergence in inflation necessitates the Federal Reserve to weigh multiple factors in policy formulation, as excessive focus on declining goods prices may underestimate the stubbornness of service sector inflation, potentially leading to uncontrolled inflation expectations [2] - Conversely, overly tightening measures to curb service sector inflation could unnecessarily impact the goods sector and overall economic growth [2] - Market expectations suggest that the Federal Reserve will continue to closely monitor service sector inflation developments and may maintain high interest rates for an extended period, with the possibility of further rate hikes to ensure inflation returns to target [3]