The latest data offers a mixed picture of the economy: Incomes are rising at a solid clip, but inflation remains stubborn and consumer spending has lost momentum.

Why it matters: Consumers are becoming more cautious. The potential upside of weaker spending is that it should help cool inflation, but that payoff has yet to materialize, with underlying inflation still higher than at any point in 2024 or 2025.

• Persistent inflation keeps pressure on the Federal Reserve to raise rates, but greater caution among consumers raises concerns that policy tightening would weigh on spending and economic growth.

What they're saying: "The best thing that can be said is that at least core inflation didn't go higher," Brian Jacobsen, chief economic strategist at Annex Wealth Management, wrote in a note, referring to the inflation gauge that strips out food and energy costs.

• The inflation fear is that "instead of reversing, it's plateauing," Jacobsen added.

The good news: Americans' disposable income rose 0.5% in July. Those gains still held up after accounting for inflation for the third consecutive month, with real disposable income increasing 0.4%.

• Spending slowed notably, with personal consumption expenditures rising just 0.2% in July and essentially flat after adjusting for inflation, compared with a 0.4% real increase in June.
• The weakness was concentrated in goods, where spending fell at a roughly $50 billion annualized rate, partly offsetting an $86 billion increase in services spending.
• With income growth outpacing that of spending, the personal saving rate advanced for the first time this year, to 3%, up 0.4 percentage point from June.

The other side: The core personal consumption expenditures price index rose 0.2% in July and was up 3.3% from a year earlier, unchanged from June.

• Over the past three months, core inflation ran at a 3% annualized pace, down from a recent peak of 4.5% in May, but still well above the Fed's 2% target.

The intrigue: Revised GDP figures suggest the economy entered the summer with stronger momentum than previously known, before signs of more subdued consumer spending emerged in July.

• Topline GDP growth was unchanged at a 1.5% annualized rate in the second quarter.
• But real final sales to private domestic purchasers — a gauge of underlying private sector demand that sums up consumer spending and business investment — grew at a robust 4.2% annualized rate, the strongest pace since the third quarter of 2019, excluding the pandemic-era swings.
• That was upgraded from an initial estimate of 3.9%, pointing to greater underlying economic strength than initially estimated.

What to watch: Inflation worries have become more pronounced inside the Fed. Boston Fed president Susan Collins said yesterday that interest rates may need to rise "soon" without evidence of sustained progress on inflation.

• Her warning comes after three Fed officials backed a rate hike in July, while the minutes from the meeting showed that "many" policymakers saw further tightening as likely if inflation failed to decline.
• Fed chairman Kevin Warsh speaks at Jackson Hole Friday morning, giving him a chance to weigh in on the Fed's path forward.

There is a hot debate over the wisdom of the Treasury Department's bond market intervention. In the meantime, market moves suggest Treasury's intended purpose — of reining in longer-term borrowing costs — is working.

The big picture: Long-term Treasury yields have stabilized since the government said a week ago that it would buy back longer-term securities by at least $4 billion at a time.

• Technical indicators in the bond market, specifically the gap between Treasury yields and swaps of equivalent duration, have narrowed, implying global investors are more willing to hold Treasuries.

By the numbers: The 30-year Treasury yield reached a 19-year high of 5.31% on Aug. 17. Since then, those yields have come down, to 5.19% this morning.

• The more widely traded — and economically consequential — 10-year Treasury note is now yielding 4.66%, down from 4.72% on Aug. 17.

Between the lines: Treasury Secretary Scott Bessent, a longtime hedge fund manager, believes that carefully crafted interventions can have outsized effects on the market by changing traders' behavior, persuading them that betting against the U.S. government would be hazardous.

• In the early innings, at least, he appears to be achieving his goal of making it riskier for investors to bet against long-term Treasuries.

What they're saying: "This new Treasury 'put' improves the asymmetry of owning the long end by providing a potential light backstop," Jason Williams, head of U.S. rates strategy at Citi, tells Bloomberg.

• Bessent's actions "all point to someone ready to do whatever it takes to achieve their goals," Williams said.

Yes, but: That doesn't settle the question of whether the policy is advisable in the medium term. Legendary investor (and Bessent mentor) Stan Druckenmiller argued this week that the underlying cause of higher rates is massive U.S. fiscal deficits, which won't be solved by tactical interventions.

• "You can't buy your way out of a solvency conversation with liquidity tools," he wrote in the Wall Street Journal. "You can only postpone the conversation and raise the eventual price."