Fed may just hit 2% inflation target | Wilnesh News

Following the Fed’s sharp rate cut a few weeks ago, this week’s inflation data provides more evidence that the central bank is getting closer to its target.

Both consumer and producer price indexes for September were close to expectations, showing inflation is slipping toward the central bank’s 2% target.

In fact, economists at Goldman Sachs think the Fed may have already done so.

Wall Street investment banks predicted on Friday that the Commerce Department’s personal consumption expenditures price index for September will be released later this month, showing a 12-month inflation rate of 2.04%.

If Goldman is correct, that number would be rounded down to 2% and consistent with the Fed’s longer-term goals, two years after inflation soared to a 40-year high and triggered an aggressive round of rate hikes. Much more. . The Fed prefers personal consumption expenditures as an indicator of inflation, although it uses a variety of inputs to make its decisions.

Chicago Federal Reserve President Goolsby said in an interview with CNBC on Thursday: “The overall trend in 12 and 18 months is clearly that inflation has declined significantly and the job market has cooled to what we consider to be a level of full employment.” The latest consumption after the price data is released. “We want to keep them both where they are now.”

While curbing inflation may not be easy, the latest data suggests that while prices have not retreated from the highs of a few years ago, they are slowing down.

The 12-month rate for the consumer price index for all items in September was 2.4%, while The Producer Price Index, a proxy for wholesale inflation and a leading indicator of pipeline pressure, showed annual growth of 1.8%.

“Central Bank District”Inflation near forecast“The dashboard puts the September 12-month headline PCE rate at 2.06%, which rounds to 2.1%. However, on an annualized basis, inflation for the entire third quarter was just 1.4% – well below expectations for the Fed’s 2 % target.

To be fair, there are some caveats that suggest policymakers still have some work to do.

Goldman Sachs said that core inflation (excluding food and energy) is an indicator that the Federal Reserve considers to be a better gauge of long-term trends, and the PCE is expected to reach an annual rate of 2.6% in September. Using just the Consumer Price Index, core inflation in September was even worse, at 3.3%.

However, Fed officials cited unexpectedly high housing inflation figures as the main driver of the core measures, and they believe the impact will ease as falling rents show through the data.

Speaking on rents on September 30, Federal Reserve Chairman Jerome Powell said he expected housing inflation to continue to subside, while “broader economic conditions also set the stage for further deflation.”

From a policy perspective, lower inflation opens the door for the Fed to continue cutting interest rates, especially as it turns its attention to the labor market, although there are some concerns about how quickly it could do so.

The federal funds rate was cut by 0.5 percentage points in September to 4.75% to 5%, which is unprecedented for the expanding economy. The Fed is expected to return to at least a normal pace of 25 percentage points. Atlanta Fed President Raphael Bostic even said Thursday that he would be willing to skip the move entirely at the November meeting.

“Aggressive easing could lead to a surge in consumer demand, which is moving towards a sustainable pace,” PNC senior economist Kurt Rankin said in a post-PPI analysis. “This outcome, in turn, would have consequences for businesses. The pressure to meet this demand has reignited increases in these companies’ own costs as they compete for necessary resources.”

Meanwhile, futures traders are almost certain the Federal Reserve will cut interest rates by 25 basis points at its November and December meetings.