Despite an aggressive series of interest rate hikes by the Federal Reserve, Core PCE, the Fed’s preferred measure of inflation, went up in August.
In August, there was a small drop in the Personal Consumption Expenditures Price Index, a measure of the value of goods and services purchased by persons living in the United States. It fell from 6.4% to 6.2% annually, however that was still higher than economist’s estimates. The drop was primarily attributable to the recent drop in energy prices, which meant Core PCE, which strips out volatile food and energy price changes, only increased in August from 4.7% to 4.9% annually, according to the Bureau of Economic Analysis.
The new data parallels the more well-known Consumer Price Index, which showed core prices rising, with inflation near historic highs, when it was released earlier this month. This continued persistence of inflationary measures will not allay fears on Wall Street of an aggressive series of Fed rate hikes negatively impacting the economy, and possibly pushing the world into a global recession.
Fed Policymakers have spoken with one voice in saying that so long as inflationary indicators remain, high interest rates will be maintained “until the job is done,” despite risks to the economy of a recession or a collapsing job market. Neel Kashkari, head of the Federal Reserve Bank of Minneapolis, said on Tuesday the Fed was clear in deciding that it would not repeat the mistakes of the seventies by lowering interest rates prematurely. Vice Chair Lael Brainard said essentially the same in a speech on Friday morning.
The data has not left investors optimistic. Goldman Sachs has predicted there will be another 1.25% worth of rate increases, taking the Fed funds rate from 3.25% to 4.5% between now and the end of the year. As a result the bank has slashed its S&P 500 expectations by roughly 16%.
The Fed has said, it expects food, rent, and utilities to experience significant inflation into next year at the earliest, as the Fed struggles to lower inflation back into its target range of 2%.
