Federal government officials said Thursday that the inflation gauge watched most closely by the Federal Reserve has now fallen nearly to the levels it was at pre-pandemic.
The Commerce Department reported that prices rose just 2.1% in September from a year earlier. That’s down from a 2.3% rise in August and is just barely above the Fed’s 2% inflation target.
In the past six months, core inflation has declined to a 2.3% annual rate, down from 2.5% in August, according to a report from the Associated Press, which also reported that economists still expect the Fed to cut its key rate by a quarter-point when it meets next week.
“It’s essentially the soft landing that many of us dreamed of,” Gregory Daco, chief economist at the tax and accounting firm EY, told the AP, referring to a scenario in which high interest rates manage to tame inflation without causing a recession. “You really have the best of both worlds, with consumer spending growth remaining resilient and inflation moving within striking distance of the Fed’s 2% target.”
A separate measure of worker pay that the government issued Thursday — the employment cost index — showed that wages and benefits grew just 0.8% in the July-September quarter, the slowest such pace in three years. Measured from the same quarter a year earlier, workers’ paychecks, excluding government employees, rose 3.8%, a pace consistent with the Fed’s inflation target, according to Daco.
Thursday’s report also showed that Americans remain confident enough in their finances to keep shopping, according to the AP: Spending jumped 0.5% from August to September, which helped the economy expand at a healthy clip in the July-September quarter.
Chair Jerome Powell signaled in late August that the Fed is increasingly confident that inflation is coming under control, but the outlook for future rate cuts isn’t quite clear. The upbeat economic data has sparked some speculation that the Fed might decide to skip a rate reduction in December or cut rates more slowly next year.
