Inflation on the Federal Reserve’s preferred measure accelerated in September. The personal consumption expenditures price index rose 0.5 percent in the month, after 0.3 percent in August, lifting the year on year rate to 3.6 percent from 3.4 percent. Core PCE, excluding food and energy, rose 0.3 percent in September, matching an upwardly revised August gain, and the annual core rate ticked up to 3.1 percent from 3.0 percent.
The household side of the same report was softer than the price side. Personal income rose 0.2 percent in September, slowing from 0.3 percent in August, and personal spending rose 0.5 percent after 0.9 percent, with real spending close to flat. Analysts cited in market coverage pointed to a saving rate below 4 percent as a sign that the consumer impulse behind the strong third quarter may be fading into the fourth.
The report therefore cut both ways, and markets treated it that way. The monthly numbers say underlying inflation is stuck above 3 percent, well clear of the 2 percent target, a day after the Fed held at 3.75 to 4.00 percent with two dissents for a hike. The quarterly numbers in the GDP release say the third quarter run rate for core PCE was 2.5 percent, down from 3.3 percent. Rate futures left the implied chance of a December quarter point hike little changed at about 83 percent, according to market reporting of the session.
What settles the argument is October. National Economic Council director Kevin Hassett said the Fed would act if the October inflation data come in high, a remark reported by Bloomberg on October 29. The October personal income and outlays report is due with the GDP second estimate on November 25, after the October consumer price report, and those two prints are now the data path into the December 8 to 9 meeting.