• Year-over-year headline inflation held at 1.7%
  • Core inflation held at 2.4%.

Core ex-food & energy CPI price inflation held at a 2.4% year-over-year rate in September – still above the Fed’s 2% inflation objective. Energy prices have been weighing a touch on the headline rate, which remained at a lower 1.7% year-over-year growth pace in September. But lower gasoline prices are a positive for household purchasing power. The Fed’s preferred core PCE deflator has been below core CPI this year, but growth in that measure has also ticked higher in recent months, rising to 1.8% in August.

Underlying inflation trends increasingly look to be converging around the Fed’s 2% objective. The central bank is also, if anything, exceeding its full-employment objective with the unemployment rate sitting at multi-decade lows. Still, Fed policymakers have shown far more concern about the external growth backdrop, and the economic impact of escalating US-China trade tensions/tariffs, than current domestic conditions. The Fed remains highly likely to follow up 25 basis point rate cuts in July and September with another move lower in Q4.

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