December 4, 2022

August PCE Inflation Data Shows Prices Are Stubbornly High

The data underlined the challenging path the Fed faces as it tries to guide the U.S. economy toward slower inflation. Both the economy and price pressures have retained momentum, even as central bankers raise interest rates to try to cool demand. As a result, the Fed has become steadily more aggressive in its efforts to constrain spending and temper inflation, and it is likely to keep raising rates and keep them elevated for a while.

“Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” Lael Brainard, the Fed’s vice chair, said in a speech on Friday. She later added that policymakers were “committed to avoiding pulling back prematurely.”

The Fed has lifted interest rates five times this year, including three unusually large three-quarter-point increases, and Ms. Brainard reiterated that it would need to restrict the economy for some time to make sure inflation was back under control. But she also emphasized that future rate increases would depend on incoming data, suggesting that the Fed will keep an eye on the economy as it slows down and calibrate its moves accordingly.

Economists remain hopeful that healing supply chains, a slowing housing market, cooling consumer demand and a moderating labor market will combine to pull inflation lower in the months ahead. Spending on goods fell in August for the second month in a row, which should ease pressure on factories and shipping routes, and overall spending may slow further as consumers draw down the extra savings they built up earlier in the pandemic.

But Russia’s war in Ukraine poses a constant risk to the global supply of food and oil, and some industries, including automobiles, remain severely disrupted. Rents and other service costs have been rising sharply, and labor shortages spanning many industries have pushed wages up, which could feed through to higher prices.

Article source: https://www.nytimes.com/2022/09/30/business/economy/inflation-fed.html

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