This morning’s US economic data confirms a strong economy, with the Federal Reserve’s preferred inflation gauge (PCE) settling near 3%.
Specifically, the latest income and spending figures came in stronger than expected, while the inflation readings were in line with consensus.
Markets are likely to welcome these numbers, especially since inflation near the 3% level is not unsettling long-term expectations.
With the Fed signaling rate cuts, and with Chair Powell having repeatedly excluded consideration of the inflation target during the current Monetary Policy Review, this data is consistent with the hypothesis that the central bank is tolerating higher inflation (marking the fifth consecutive year it has missed its official 2% target) while continuing to push 2% realization sometime down the road in a rolling fashion.
Meanwhile, growing outside pressures for Fed reforms seems to have enabled an increasing number of Fed officials to opine on needed changes. (For examples, please see prior posts on Fed officials favoring a move to an inflation range for this part of the dual mandate, as well as an alternative intermediate policy target.)
While very overdue, it’s good news to have such deliberations started before the upcoming change in Fed leadership.
