An article summarized by CNBC:
U.S. inflation was cooler than economists expected in August, according to the Federal Reserve’s preferred inflation gauge, the PCE price index. Prices rose 3.4% from a year earlier, below the 3.7% forecast, while core PCE, which excludes food and energy, rose 3.0%, also below expectations. However, both measures remain well above the Fed’s 2% inflation target, with higher gasoline and transportation costs contributing to the monthly increase.
The report also showed that Americans’ income rose 0.2% while spending jumped 0.9% in August, suggesting consumers were still spending despite elevated prices. Meanwhile, the Commerce Department revised second-quarter GDP growth up significantly, from 1.5% to 2.2%, with stronger consumer and government spending and investment contributing to the improvement. A measure of underlying private domestic demand rose 4.6%, pointing to relatively strong economic activity.
For the Federal Reserve, the numbers create a difficult balancing act: inflation is still too high, but the economy is still growing. Markets subsequently reduced expectations for another rate hike in October, particularly after New York Fed President John Williams said there was “no need for urgency” and the Fed had time to gather more information. However, Williams indicated another hike could still happen later this year, with markets shifting expectations toward December.
