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By Robert Eisenbeis
On Friday, Oct 28, the Fed got a reading on its target inflation number when the Bureau of Economic Analysis released the Personal Consumption Expenditures (PCE) Index for September. While this reading is over a month old, it is still the most current index the FOMC will have access to in its meeting on November 1–2. Unlike the CPI, which came in at 8.2%, the PCE held steady at 6.2% on a year-over-year basis. The core PCE did increase from 4.9% to 5.1%. There was considerable movement of prices within the index. For example, durable goods increased from 5.3% to 5.7%, but non-durables decreased from 10.6% to 9.5%, reflecting declines in gasoline and other energy-related products. Prices increased for services from 5.0% to 5.3%, driven by rising housing and transportation services costs. High food prices, which are widely cited in the news media, actually decreased slightly, from 12.3% to 11.9%. But on a year-over-year basis, energy-related goods and services and food are the major sources of inflation at this time.
The Fed will likely conclude that an unchanged PCE that is significantly above its target, combined with continued strength in the labor market, will justify another 75 basis point increase in its target range for the federal funds rate. New claims for unemployment insurance released on Thursday, Oct 17, for the week of October 22 increased 3,000 from the previous week, to 217,000, and the four-week moving average increased 6,750 to 219,000. These numbers are low and at pre-pandemic levels, indicating a strong labor market and showing little sign of a recession.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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