Although the cumulative effect of inflation has had a significant impact on the U.S. economy, this view is gradually improving, relatively speaking. Annual price increases are moving closer to the Fed’s 2% target, a trend that will likely be reflected when its own inflation data is released at 8:30 a.m. ET on Thursday. According to Dow Jones estimates, looking at the personal consumption expenditures price index, the inflation rate is expected to be 0.2% in September, which is 2.1% year-on-year. Although the Fed follows a range of indicators, it focuses on the personal consumption expenditures (PCE) inflation measure because it is considered a broader indicator than the Labor Department’s Consumer Price Index and is adjusted for consumer behavior, such as using a larger Cheaper goods replace more expensive alternatives. If these forecasts are correct, they could further push the Fed to lower its benchmark interest rate at its two-day policy meeting ending on November 7. Economist Alice Cheng said in a note on Wednesday that the Fed was welcomed to balance inflation risks with the labor market. In fact, the U.S. Department of Commerce reported on Wednesday that real GDP grew by 2.8% in the third quarter after seasonally adjustment, a slight increase from the 3% growth rate in the second quarter and 0.3 percentage points lower than Dow Jones’s forecast. In the GDP report, PCE this quarter was only 1.5%, indicating that the battle has been won. However, there is more to the picture. Core inflation, which excludes food and energy costs, has proven more resilient. The forecast for September is for a monthly increase of 0.3% and an annual growth rate of 2.6%, mainly due to a plunge in energy prices and lower overall interest rates. Although Fed officials have paid less attention to core inflation recently due to the impact on the housing market, they generally view it as a better long-term indicator. While markets remain betting on further rate cuts this year, the Fed is likely to be cautious. Bank of America U.S. and global economist Shruti Mishra wrote that inflationary trends coupled with strong economic growth “favor higher terminal rates.” “We don’t think strong economic activity will prevent the Fed from cutting rates this year, but if (Treasury) rates get closer to 4% and the data flow remains strong, the case for pausing or even halting rate cuts in the first quarter will be stronger. This is the latest A matter of weeks.
Thursday’s inflation report is expected to show the Fed is getting closer to its target | Real Time Headlines
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