Cooler inflation could buy the Fed, Trump time on another rate hike

Por Victoria Guida — POLITICO – TOP Stories

A key gauge of inflation rose less than expected in August, decreasing the odds that the Federal Reserve will hike interest rates again before the midterm elections, a potential reprieve for President Donald Trump and Republicans.

So-called core prices, which exclude more volatile food and energy prices and are therefore considered a better signal of the direction of inflation, rose 0.2% last month, according to the Bureau of Economic Analysis’ personal consumption expenditures, or PCE, index. Investors are now giving better-than-even odds that Fed policymakers will keep rates steady when they meet at the end of October.

Overall prices have risen 3.4% over the past year, the BEA said. That’s still higher than the Fed’s 2% target.

The agency also revised up its calculation of second-quarter GDP growth to 2.2%, from an earlier 1.5% estimate, in another sign of the economy’s strength.

The central bank moved earlier this month to raise borrowing costs in a bid to slow inflation, which has been fed by high oil prices resulting from the conflict in Iran. Markets overwhelmingly expected the rate hike, though Fed Chair Kevin Warsh has provided little guidance about how far he and his colleagues might have to go to put inflation back on a path to 2%.

The better-than-expected inflation data comes just a day after New York Fed President John Williams, a senior official on the central bank’s rate-setting committee, said there was “no need for urgency” as the Fed considers another rate hike this year.

“We have time to gather more information,” Williams said.

PCE is the Fed’s key inflation gauge, but this data release reflects the price situation in August. The U.S. economy is now facing a looming diesel fuel shortage, which could further push up costs for businesses.

Fonte: POLITICO – TOP Stories