23 hrs ago
US Inflation Cools as Spending Surges, Complicating Fed Rate Outlook
Prices in the United States rose more slowly than economists expected in August.
The Fed’s preferred inflation measure increased 3.4% compared with a year earlier.
That is still higher than the Fed’s 2% goal.
The measure that leaves out food and energy prices rose 3.0%.
At the same time, people spent much more money than they did in July.
Strong spending can keep prices high because businesses may face continued demand.
Because inflation was softer, investors became less sure that the Fed would raise rates in October.
However, the Fed may still consider another increase because inflation remains elevated and energy prices rose.
The Personal Consumption Expenditures price index rose 0.3% in August, while annual inflation held at 3.4%.
Core PCE inflation increased 0.2% monthly and 3.0% annually, remaining above the Federal Reserve’s 2% target.
Consumer spending jumped 0.9% in August after rising a revised 0.1% in July.
Markets lowered the probability of an October rate hike to about 41.5%, from 51.5% before the report.
Higher energy prices and strong demand could still encourage the Federal Reserve to consider further rate increases.
- Who
- The Federal Reserve, US consumers, economists and financial-market participants.
- What
- US inflation remained at 3.4% annually in August while consumer spending rose 0.9%, reducing but not eliminating expectations of an October interest-rate increase.
- Where
- The United States.
- When
- The data covered August and were released on Wednesday; the relevant Fed meeting is scheduled for October 27-28.
- Why
- Softer inflation reduced immediate pressure for another rate increase, while strong spending, above-target inflation and higher energy prices continued to support the case for tighter policy.
Reasons to delay another hike
Reasons to consider another hike
Inflation trajectory
Reasons to delay another hike
August inflation was lower than economists expected, and July data were revised downward, giving policymakers more time to assess incoming information.
Reasons to consider another hike
Annual inflation remained well above the Federal Reserve’s 2% target, so price pressures have not been fully contained.
Consumer demand
Reasons to delay another hike
Strong spending could coexist with moderating inflation, reducing the immediate need for additional tightening.
Reasons to consider another hike
Consumer spending surged 0.9%, showing resilient demand that could keep inflation elevated.
Additional inflation risks
Reasons to delay another hike
New York Fed President John Williams said he saw no urgency for further action, and economists cautioned that two months of data do not establish a new trend.
Reasons to consider another hike
Gasoline prices rebounded 4.4%, and economists warned that higher energy prices could keep inflation under pressure.
Key facts
- Annual PCE inflation
- 3.4% in August, unchanged from revised July data
- Core PCE inflation
- 3.0% year over year and 0.2% month over month
- Federal Reserve target
- 2% inflation
- Consumer spending
- Rose 0.9% in August after a revised 0.1% increase in July
- Personal income
- Increased 0.2% in August
- Saving rate
- Fell to 4.1% from 4.6% in July
- October rate-hike probability
- Declined to about 41.5% from 51.5%, according to the CME FedWatch Tool
- Gasoline prices
- Rose 4.4% in August
Quotes
Stephen Stanley
Chief US economist at Santander US Capital Markets
“Two months’ worth of data is not enough to point to a new trend.”
firstpost.com
Sources
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