U.S. inflation rises again and stays well above Fed’s target. Rate hike might be in play.

The Federal Reserve's preferred measure of U.S. inflation — the personal consumption expenditures price index — rose at an elevated pace in July, keeping the annual rate well above the central bank's 2% target. The data renew concerns that the final stretch of disinflation is proving slower than expected, and that price pressures remain too sticky for policymakers to stand pat.

Because the Fed sets interest rates with inflation as a primary guide, the latest reading brings a rate increase at next month's Federal Open Market Committee meeting back into play. A hike would mark a continuation of the central bank's tightening cycle, aimed at cooling demand across the economy. Markets will now pay close attention to comments from Fed officials in the weeks ahead, as they weigh the risk of easing policy too soon versus keeping borrowing costs restrictive for longer.

The key question for investors and households is whether July's reading is an outlier or the start of a broader trend. Upcoming inflation reports and labor market data will help clarify the path for rates through the rest of the year.