Inflation Steadies As Fed Holds Interest Rates Amid Strong Consumer Spending

The U.S. inflation rate remained steady in September, matching the previous month’s figure of a 3.4% increase, as reported by the Personal Consumption Expenditures Index. This stability occurred despite robust consumer spending, which increased by 0.7% last month (0.4% after adjusting for inflation). The core price measure, which excludes volatile food and fuel costs, saw a slight decrease to 3.7% from a revised 3.8% in August.

These figures exceed the Federal Reserve’s 2% inflation target but represent a moderation from the over 7% inflation experienced in the summer of 2022. The significant decrease in inflation rates can be attributed to easing supply chain disruptions and declining food and gas prices following the resolution of the Russia-Ukraine conflict. Federal Reserve’s higher interest rates have also contributed to cooling sectors like housing through more expensive mortgages.

The Federal Reserve has raised interest rates to 5.25%, up from near-zero levels in March 2022. The rates are expected to remain unchanged at the upcoming two-day Federal Reserve meeting concluding on Nov. 1, 2023. Despite suggestions that interest rates are likely at or near their peak, Fed Chair Jerome H. Powell has indicated that further economic growth surprises and consumer demand for labor could necessitate additional monetary policy tightening.

The economy has shown surprising resilience to higher borrowing costs, including mortgage expenses, keeping the possibility of a further Federal Reserve rate move on the table. This resilience raises questions about whether inflation can slow further amidst strong consumption rates.

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