Inflation Holds Steady in September
However, the core index, leaving out often volatile food and energy costs, rose to a 5.1% annual rate from August’s 4.9% level. Fed Chairman Jerome Powell often points to the core PCE as a barometer of inflation when discussing monetary policy .The report is the last government reading on inflation before the Fed meets on Tuesday to consider monetary policy . Most analysts expect that two-day meeting will conclude with the central bank raising rates by 75 basis points as it continues its campaign against inflation .On Thursday, the government reported that gross domestic product increased by 2.6% annually in the third quarter, though there were signs of a slowdown. The housing sector has been hit by high mortgage rates and there are weaknesses in retail and the tech industry. Amazon on Thursday forecast weak fourth quarter sales, suggesting the upcoming holiday season would not be as robust as some retailers had hoped.“The key to our outlook is what path inflation will take,” says Steve Wyett, chief investment strategist at BOK Financial. “If the Fed raises rates and slows down the economy, then inflation will come down.”The question, though, is at what cost. Fed Chairman Jerome Powell has said the regime of higher interest rates will bring “pain” to business and consumers alike, and that could take the form of increased unemployment and a recession.Already, Powell is feeling political heat from Democrats worried about the effect on higher interest rates as they also try to deflect blame for inflation that is running at an 8.2% annual rate.“Raising rates now when prices may come down would be foolish and damaging to American consumers and small businesses,” Colorado Democratic Sen. John Hickenlooper wrote in a letter to Powell Thursday, adding that the Fed’s actions so far have “failed” to knock inflation down.
There have been meaningful declines in prices in some areas of the economy. Housing prices are now rising at a 13% annual rate compared to 20% at their peak earlier this year. Gasoline prices have fallen more than $1 a gallon from their $5 peak this summer.But what concerns economists and the Fed is that inflation has spread from the goods sector to the services part of the economy and the labor market remains tight, putting pressure on employers to increase wages.Beyond the amount that the Fed hikes rates next week, observers will be looking for what Powell says in his press conference about the economy and future monetary policy . Markets are hoping for signs the Fed could be poised for a halt, or reduction, in the amount of interest rate increases as it assesses what effect its aggressive tightening has had on the economy.
The question, though, is at what cost.
Already, Powell is feeling political heat from Democrats worried about the effect on higher interest rates as they also try to deflect blame for inflation that is running at an 8.2% annual rate.
“Raising rates now when prices may come down would be foolish and damaging to American consumers and small businesses,” Colorado Democratic Sen. John Hickenlooper wrote in a letter to Powell Thursday, adding that the Fed’s actions so far have “failed” to knock inflation down. Beyond the amount that the Fed hikes rates next week, observers will be looking for what Powell says in his press conference about the economy and future monetary policy.
