The Fed May Have Just Hit Its 2% Inflation Target

This week’s inflation data provided more evidence that the Federal Reserve is nearing its objective, following the central bank’s dramatic interest rate cut just a few weeks ago, Jeff Cox reported for CNBC.

“The overall trend over the past 12 to 18 months clearly shows that inflation has significantly decreased, and the job market has cooled to a level that is around where we believe full employment is,” said Chicago Fed President Austan Goolsbee.

Consumer and producer price indexes for September aligned with expectations, indicating that inflation is drifting down to the Fed’s 2% target. In fact, economists at Goldman Sachs believe the Fed may already have achieved its goal.

The Wall Street investment bank projected on Friday that the Commerce Department’s personal consumption expenditures (PCE) price index for September will show a 12-month inflation rate of 2.04% when it is released later this month.

If Goldman’s projection is correct, that number would be rounded down to 2%, aligning perfectly with the Fed’s long-held objective, a little over two years after inflation surged to a 40-year high, prompting an aggressive series of interest rate hikes.

The Fed favors the PCE as its primary inflation gauge, though it uses various inputs in its decision-making process.

Words

“The overall trend over the past 12 to 18 months clearly shows that inflation has significantly decreased, and the job market has cooled to a level that is around where we believe full employment is,” said Chicago Fed President Austan Goolsbee in a CNBC interview.