The Federal Reserve’s Core Personal Consumption Expenditures (PCE) Deflator for September dipped to a four-month low of 3.7% year-on-year (YoY), while the Headline PCE steadied at 3.4%. Despite this YoY slowdown, the Core PCE experienced its largest month-on-month (MoM) surge of 0.3% in four months, according to data released on Friday.
Simultaneously, both services inflation excluding housing and energy, and services inflation ex-Shelter accelerated to 0.4%. The comprehensive PCE price index rose by 0.4%, propelled by escalating energy costs.
Personal Consumption’s growth of 0.7% MoM significantly outpaced the mere 0.3% income growth recorded for the same period. Private sector wages plunged to a February low of 3.9%, while government wages soared to near-record YoY levels of 7.8%, just under the October record of 8.7%. This wage disparity triggered a collapse in the personal savings rate from 4% to 3.4% of Disposable Personal Income (DPI), marking a fourth consecutive month of decline despite artificial boosts – a trend linked to “Bidenomics”.
The Bureau of Economic Analysis (BEA) reported September’s PCE and Core PCE indices at 3.4% and 3.7%, respectively, with the Consumer Price Index (CPI) higher at 3.7%. The PCE rose by 0.4% monthly, keeping inflation double the Federal Reserve’s target.
Federal Reserve Chair Jerome Powell, speaking at the Economic Club of New York on Friday, suggested an end to rate hikes but left room for further increases based on the balance of risks and incoming data.
Meanwhile, the Cleveland Fed Bank’s Inflation Nowcasting predicts that October’s PCE will decrease to an annual rate of 3.2%. The Federal Open Market Committee (FOMC) is expected to maintain the benchmark fed funds rate between 5.25% and 5.50%.
Despite a Q3 GDP growth of 4.9%, fueled by exceptional consumer and government spending and unemployment remaining below 4%, the Fed doesn’t see inflation reaching its 2% target until 2026.
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