Federal Reserve Chairman Jerome Powell attends a news conference after the September FOMC meeting at the William McChesney Martin Jr. Federal Reserve Building in Washington, DC, September 18, 2024.
Anna Money Tree | Getty Images
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.
This week, the consumer price index and producer price index for September were both close to expectations, showing that inflation is falling towards 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, to be released later this month, would show a 12-month inflation rate of 2.04%.
If Goldman is correct, that number would be rounded down to 2% and would be consistent with the Fed’s long-term goals, more than two years after inflation surged to a 40-year high and triggered an aggressive round of rate hikes. . The Fed prefers personal consumption expenditures as an indicator of inflation, although it uses a variety of inputs to make its decisions.
“The overall trend over 12 to 18 months is clearly that inflation has declined significantly and the job market has cooled to what we consider to be full employment,” Chicago Fed President Goolsbee told CNBC after Thursday. at the latest consumer price data was released. “We want to keep them both where they are now.”
There are some obstacles ahead
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, the pace of increases is slowing.
The 12-month rate for the consumer price index for all items in September was 2.4%, while producer price indexThe wholesale inflation indicator and the leading indicator of pipeline pressure increased at an annual rate of 1.8%.
Goldman Sachs’ forecast that the PCE index will rise to 2% is also broadly consistent with the Cleveland Fed’s tracking.
“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.
Federal Reserve Chairman Powell said last week Solve the rental problemHe said he expected housing inflation to continue to fall 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.
september reduced by half a percentage point Adjusting the federal funds rate to 4.75% to 5.00% is unprecedented for an economic expansion, and 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 betting that the Federal Reserve will almost certainly cut interest rates by 25 basis points at its November and December meetings.
