The latest inflation readings appear to be bringing the US federal reserve closer to its cherished 2% inflation target. The latest consumer and producer price indices for September were similar to expectations in line with what will herald another downward trend in inflation. Just weeks after a major interest rate cut, this appears to be the right push for the Federal Reserve.
According to economists at Goldman Sachs, the Commerce Department’s September personal consumption expenditures price index will report a 12-month inflation rate of about 2.04%, which, if accurate, would fall to 2%. That’s more than two years after inflation hit a 40-year high. The Fed has taken aggressive rate hikes based on this inflation, although it usually uses PCE as its inflation gauge, while considering all indicators for decision-making.
Chicago Fed President Austan Goolsbee favored the trend, commenting in an interview with CNBC, noting, “inflation has slowed significantly over the past 12 to 18 months and the labor market is stabilizing at full employment levels.” He said he wants the means of inflation and employment to remain in this situation.
Despite these encouraging signs, there are a few caveats. The consumer price index rose 2.4% year-on-year in September, while the producer price index—the leading indicator of retail inflation—was at 1.8%. Goldman’s estimate is in line with data from the Cleveland Fed, which estimates that the headline PCE rate was 2.06% in September.
However, the core rate, which excludes food and energy, is expected to be 2.6% for PCE and 3.3% for the consumer price index, which means there may be continued inflationary pressures. Fed officials pointed to higher levels of core inflation, as well as housing costs, citing those as temporary factors that could temper going forward as hiring trends normalize.
Now that recent inflation has moderated, the basis for the Fed to consider further rate cuts is emerging, especially because market speculation is that a quarter point cut could be made at both the November and December meetings. However, analysts have warned that the broad easing may indirectly boost consumer demand, thereby fueling inflationary trends in the economy.
Source link
