This week’s inflation data suggests that the Federal Reserve is approaching its target, following a recent significant interest rate cut by the central bank. Both consumer and producer price indexes for September were in line with expectations, indicating that inflation is moving towards the Fed’s 2% goal. Economists at Goldman Sachs believe that the Fed may have already reached this target. The investment bank projected that the Commerce Department’s personal consumption expenditures price index for September will reveal a 12-month inflation rate of 2.04%, which would be rounded down to 2%, aligning with the Fed’s objective.
Chicago Fed President Austan Goolsbee noted that inflation has decreased significantly over the past 12 to 18 months, while the job market has stabilized around what is considered full employment. The latest data shows that although prices have not returned to previous high levels, the rate of increase is slowing down. The 12-month rate for the all-items consumer price index was 2.4% in September, while the producer price index stood at 1.8%, indicating moderate inflation.
Goldman’s forecast aligns with the Cleveland Fed’s tracking, which estimates the headline PCE rate at 2.06% for September. However, the annualized inflation rate for the third quarter is currently at 1.4%, below the Fed’s target. Core inflation, excluding food and energy, is expected to be at 2.6% for the PCE in September, indicating some challenges for policymakers. Fed Chair Jerome Powell anticipates a decrease in housing inflation, which could lead to further disinflation in the broader economy.
Lower inflation levels may prompt the Fed to continue reducing rates, especially as it focuses on the labor market. The recent rate cut was significant, and there is debate about the pace of future cuts. Futures traders are anticipating rate cuts of a quarter point at both the November and December meetings, while some policymakers are cautious about aggressive easing measures.
