Federal Reserve Chairman Jerome Powell arrives for a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building. on September 18, 2024 in Washington, DC.
Anna Moneymaker | Getty Images
Inflation data this week provides further evidence that the Federal Reserve is getting closer to its target, fresh from the central bank’s aggressive interest rate cuts just weeks ago.
The consumer price index and producer price index in September both reached expected levels, showing that inflation is falling to the central bank’s 2% target.
In fact, economists at Goldman Sachs think the Fed may already be there.
Wall Street investment banks on Friday expected that the Commerce Department’s personal consumption expenditures price index for September will show a 12-month inflation rate of 2.04% when released on end of this month.
If Goldman is right, that number would be rounded down to 2% and in line with the Fed’s long-term target, more than two years after inflation spiked to a 40-year high and was followed by a sharp hike in interest rates. strong. . The Fed prefers PCE as its measure of inflation even though it uses a variety of inputs to make its determination.
“The general trend over the last 12, 18 months is clearly that inflation has come down a lot and the job market has cooled to the point where we thought it would,” Chicago Fed President Austan Goolsbee said in an interview with CNBC. full employment situation”. Thursday after the latest date consumer price data has been released. “We want them both to stay in their current positions.”
Some obstacles ahead
While keeping inflation at a stable level may not be an easy task, the latest data shows that while prices have not fallen from worrying highs a few years ago, the pace of growth is Prices are coming back.
The 12-month interest rate of the consumer price index for all items was at 2.4% in September, while producer price indexrepresents wholesale inflation and a leading measure of pipeline pressures, showing an annual rate of 1.8%.
Goldman’s prediction that the PCE index will move towards 2% is also in line with tracking from the Cleveland Fed.
Central Banking Sector”inflation forecast” The panel pegs the 12-month headline PCE rate at 2.06% for September, which will be rounded up to 2.1%. However, at an annual rate, inflation for the entire quarter the third was at just 1.4% – well below the Fed’s 2% Target rate.
To be sure, there are some warnings that policymakers still have some work to do.
According to Goldman, core inflation, which excludes food and energy and which the Fed considers a better gauge of long-term trends, is expected to come in at 2.6% annually for PCE in September. Using only the consumer price index, core inflation was even worse in September, at 3.3%.
Still, Fed officials cited the unexpectedly high housing inflation number as the main driver of the core measure, which they said would ease as the trend toward lower rents plays out in the data.
Fed Chairman Jerome Powell last week, Resolve the rental situationsaid he expected housing inflation to continue to decline while “broader economic conditions also set the stage for further deflation.”
From a policy standpoint, 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 the pace changes in interest rates.
September reduced by half a percentage point for a federal funds range of 4.75% to 5% is unprecedented for an expanding economy, and the Fed is at least expected to return to the usual 1/4-point pace often. Atlanta Fed President Raphael Bostic even said Thursday that he was willing to skip a move altogether at the November meeting.
“Aggressive easing would risk spurring a surge in consumer demand just as it is stabilizing at a sustainable pace,” Kurt Rankin, senior economist at PNC, said in an analysis after the PPI. . “This outcome will put pressure on businesses to meet that demand, triggering cost benefits for those businesses themselves as they scramble for the resources needed to do so.”
Meanwhile, futures traders are betting on the near-certainty that the Fed will cut interest rates by a quarter of a point at both its November and December meetings.
