Federal Reserve Chairman Jerome Powell arrives after the Federal Open Market Committee’s September meeting with William McChesney Martin Jr. on September 18, 2024 in Washington. in the Federal Reserve Board building.
Anna Moneymaker | Getty Images
This week’s inflation data provided further evidence that the Federal Reserve is moving closer to its target, following the central bank’s dramatic interest rate cut a few weeks ago.
September’s consumer and producer price indices came in around expectations, showing that inflation is edging towards the central bank’s 2% target.
In fact, economists at Goldman Sachs believe the Fed may already be there.
The Wall Street investment bank forecast Friday that the Commerce Department’s personal consumption expenditures price index for September will show a 12-month inflation rate of 2.04 percent when it is released this month.
If Goldman is correct, that number would round to 2% and would be in line with the Fed’s long-standing target, just over two years after inflation rose to a 40-year high and an aggressive interest rate hike was launched. . The Fed prefers PCE as an inflation gauge, although it uses a variety of inputs to make its decisions.
“The overall trend over the course of 12, 18 months is clearly that inflation has come down a lot, and the labor market has cooled to what we think is full employment,” Chicago Fed President Austan Goolsbee said in a CNBC interview Thursday. after the last consumer price data was released “We would like them both to stay where they are right now.”
A few obstacles ahead
While keeping inflation at bay is no easy task, the latest data shows that while prices are not moving away from the serious heights of a few years ago, the rate at which they are increasing is slowing.
The 12-month rate of the price index for all consumer products was 2.4% in September, and producer price indexa proxy for wholesale inflation and a leading gauge of pipeline pressures, showed an annual rate of 1.8%.
Goldman’s projection is also in line with the Cleveland Fed’s expectation that the PCE index will rise to 2%.
Central Bank District’s “inflation nowcasting“The slate pegs the 12-month PCE rate for September at 2.06%, which would round to 2.1. However, on an annualized basis, inflation for the full third quarter came in at just 1.4%, well below the Fed’s 2% target .
To be sure, there are some caveats to show that policymakers still have a job to do.
Core inflation, which excludes food and energy and is a metric that the Fed considers a better measure of long-term trends, will have an annual rate of 2.6% for PCE in September, according to Goldman. Using only the consumer price index, core inflation was even worse in September at 3.3%.
Fed officials, however, see unexpected shelter inflation numbers as the main driver of the core measure, which they believe will ease as a lower rent trend works its way through the data.
Fed Chairman Jerome Powell on September 30 dealing with the rental situationHe said he expects housing inflation to continue to decline, “while broader economic conditions also set the table for further disinflation.”
From a policy perspective, lower inflation opens the door for the Fed to continue cutting rates, particularly as it focuses on the labor market, although there are fears about how quickly it should move.
of September a half percent reduction A fed funds rate of 4.75% to 5% was unprecedented for an expanding economy, and the Fed is expected to return to at least a quarter-point pace. Atlanta Fed President Raphael Bostic also said on Thursday that he would be willing to avoid a move altogether at the November meeting.
“Aggressive easing would risk increasing consumer demand as it settles at a sustained pace,” PNC chief economist Kurt Rankin said in a post-PPI analysis. “That outcome, in turn, would put pressure on businesses to meet that demand, reigniting profits at the expense of those businesses as they seek the necessary resources to do so.”
Futures traders, meanwhile, are betting on the certainty that the Fed will cut rates by a quarter point at its November and December meetings.
