The core index of the Federal Reserve’s preferred measure of inflation went up in August, despite a historically aggressive campaign of interest rate hikes intended to slow it.
The Personal Consumption Expenditures Price Index (PCE), which measures the value of goods and services purchased by “persons” residing in the U.S., was down slightly in August from 6.4% to 6.2% annually, but was higher than economists anticipated, according to CNBC. This decline was almost entirely off the back of falling energy prices, with so-called core PCE, which does not consider the more-volatile food and energy indices, increasing in August from 4.7% to 4.9% annually, according to the Bureau of Economic Analysis.
This new data closely mirrors the results of the more well-known Consumer Price Index (CPI), released earlier this month, which also saw core prices rise as overall inflation remained near historic highs. As inflation lingers, investors have grown increasingly concerned that the Fed’s aggressive campaign of interest rate hikes will continue unabated, prompting the Dow Jones Industrial Average to seesaw in and out of a major slump known as a bear market.
Aug PCE #inflation hotter than expected, w/headline +6.2% down from +6.3% in Jul but higher than expected +6%. Core +4.9% (up from 4.7% in Jul & ahead of 4.7% expectations). This is not positive, but it also won’t be terribly shocking after firm CPI & PPI, @knowledge_vital writes pic.twitter.com/uVoEUVl4tJ
— Holger Zschaepitz (@Schuldensuehner) September 30, 2022
The Fed has been consistent at all levels that high interest rates will remain “until the job is done,” even at the cost of jobs or triggering a recession, as Fed Chair Jerome Powel has said multiple times. On Tuesday, Neel Kashkari, head of the Federal Reserve Bank of Minneapolis, said that the Fed would not repeat the mistakes of the 1970s by bringing down interest rates too quickly, with Vice Chair Lael Brainard echoing that sentiment in a Friday morning speech, according to CNBC.
This messaging, in conjunction with the Fed’s aggressive rate hike campaign, has led Goldman Sachs to slash its expectations for the S&P 500 stock index by about 16%, anticipating the Fed will raise rates by at least another 1.25% by the end of the year, to 4.5% from 3.25%.
Food, rent and utilities are among the critical products that the Fed anticipates will continue to face significant inflation until next year at the earliest as the Fed struggles to bring inflation back to its target of 2%.
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