Fed's Preferred Inflation Gauge Drops to 2.2%: Economic Resilience and 2024 Election Impact
Federal Reserve’s Preferred Inflation Measure Shows Easing Price Pressures
The Federal Reserve’s preferred inflation gauge indicates a continued easing of price pressures, potentially impacting the political landscape as the 2024 election approaches. According to recent data, prices rose 0.1% from July to August, down from 0.2% in the previous month. Year-over-year inflation fell to 2.2%, a significant drop from July’s 2.5%, bringing it closer to the Fed’s 2% target.
This cooling inflation trend may affect former President Donald Trump’s polling advantage on economic issues. A recent survey reveals a near-equal split between Trump and Vice President Kamala Harris regarding economic handling, suggesting Harris may be shedding some of President Joe Biden’s economic baggage as consumer sentiment improves.
In August, grocery costs barely increased, while energy costs dropped 0.8%. Core prices, which exclude volatile food and energy components, rose 0.1% month-over-month and 2.7% year-over-year, slightly higher than in July. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, commented that “sticky inflation is yesterday’s problem.”
The Federal Reserve has responded to the improving inflation picture by cutting its benchmark interest rate by a half-point. Policymakers signal additional half-point rate cuts in November and December, with further reductions planned for 2025 and 2026. However, Tom Barkin, president of the Federal Reserve Bank of Richmond, advocates for a cautious approach to rate cuts.
Economic indicators show positive trends, with Americans’ incomes and spending increasing by 0.2% last month. The U.S. economy expanded at a 3% annual pace in the April-June quarter, higher than previously estimated. The savings rate has also improved, reaching 4.8% in September.
The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index, generally shows a lower inflation rate than the consumer price index (CPI). This index accounts for changes in shopping behavior when inflation rises.
Other economic indicators paint a picture of resilience. Unemployment benefit applications fell to a four-month low last week, retail spending increased, and industrial production rebounded. Single-family-home construction rose sharply, and consumer sentiment improved for the third consecutive month, driven by favorable prices for durable goods.
As inflation continues to ease and economic indicators show positive trends, the impact on the political landscape and future monetary policy decisions remains to be seen.
