https://www.cnbc.com/2024/10/11/the...h-just-hit-its-2percent-inflation-target.html The Federal Reserve may have pretty much just hit its 2% inflation target Published Fri, Oct 11 20242:20 PM EDTUpdated Moments Ago Jeff Cox@jeff.cox.7528@JeffCoxCNBCcom Share Key Points This week’s inflation data provided more evidence that the Federal Reserve is nearing its 2% objective, a mark that Goldman Sachs thinks the central bank may have already hit. From a policy standpoint, lower inflation opens the door for the Fed to keep cutting interest rates. Federal Reserve Chairman Jerome Powell arrives to a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building on September 18, 2024 in Washington, DC. Anna Moneymaker | Getty Images This week’s inflation data provided more evidence that the Federal Reserve is nearing its objective, fresh on the heels of the central bank’s dramatic interest rate cut just a few weeks ago. Consumer and producer price indexes for September both came in around expectations, showing that inflation is drifting down to the central bank’s 2% target. In fact, economists at Goldman Sachs think the Fed may already be there. The Wall Street investment bank Friday projected that the Commerce Department’s personal consumption expenditures price index for September will show a 12-month inflation rate of 2.04% when it is released later this month. If Goldman is correct, that number would get rounded down to 2% and be right in line with the Fed’s long-held objective, a little over two years after inflation spiked to a 40-year high and unleashed an aggressive round of interest rate hikes. The Fed prefers the PCE as its inflation gauge though it uses a variety of inputs to make decisions. “The overall trend over 12, 18 months is clearly that inflation has come down a lot, and the job market has cooled to a level which is around where we think full employment is,” Chicago Fed President Austan Goolsbee said in a CNBC interview Thursday after the latest consumer price data was released. “We’d like to get both of them to stay in the space where they are right now.” [paste:font size="5"]producer price index, a proxy for wholesale inflation and a leading gauge for pipeline pressures, showed an annual rate of 1.8%. Goldman’s projection that the PCE index is heading to 2% is also about in line with tracking from the Cleveland Fed. The central bank district’s “inflation nowcasting” dashboard pegs the 12-month headline PCE rate at 2.06% for September, which would get rounded up to 2.1%. However, on an annualized pace, inflation for the entire third quarter is running at just a 1.4% rate — well below the Fed’s 2% goal. To be sure, there are some caveats to show that policymakers still have some work to do. Core inflation, which excludes food and energy and is a metric that the Fed considers a better measure of longer-term trends, is expected to run at a 2.6% annual rate for the PCE in September, according to Goldman. Using just the consumer price index, core inflation was even worse in September, at 3.3%. Fed officials, though, see the unexpectedly high shelter inflation numbers as a major driver of the core measure, which they figure will ease as a lower trend in rents works its way through the data. Fed Chair Jerome Powell on Sept. 30, addressing the rent situation, said he expects housing inflation to continue to recede while “broader economic conditions also set the table for further disinflation.” From a policy standpoint, lower inflation opens the door for the Fed to keep cutting rates, particularly as it turns its attention to the labor market, though there’s some trepidation about how quickly it should move. September’s half percentage point reduction to a fed funds range of 4.75% to 5% was unprecedented for an economy in expansion, and the Fed at the very least is expected to return to its normal quarter-point pace. Atlanta Fed President Raphael Bostic even said Thursday he’d be open to skipping a move altogether at the November meeting. “Aggressive easing would risk spiking consumer demand just as it is settling into a sustainable pace,” PNC senior economist Kurt Rankin said in a post-PPI analysis. “This result would in turn put pressure on businesses to meet that demand, re-igniting gains in those businesses’ own costs as they jockey for the necessary resources to do so.” Futures traders are betting on a near certainty that the Fed cuts rates by a quarter point at both the November and December meetings. ------------------------------------------------------------ So I would expect another 50 basis point rate cut in the next meeting because of that. Also the unemployment rate is still at a higher level than some months before, so the uptrend there is not broken, meaning there is still pressure on the job side. So with inflation has hit the target almost I see no other prudent choice to make another 50 bps rate cut at the next meeting, maybe also another 50 bps rate cut on the following meeting after depending on the development of the unemployment rate.
Housing & Union contracts will keep inflation elevated. Since Unions have contracts that last a long time, every contract that is up for renewal will likely result in much higher wages or strikes like the longshoreman one. There is no short-term fix for housing. It will keep rising until munis decide to change their NIMBY rules or commerce in the US becomes more scattered into cities & areas where real estate is cheap. Away from SF, LA, Seattle, SLC, Boston, Chicago, RTP, NYC, Austin, etc.