A little more than a week before each interest rate meeting, the Federal Reserve goes silent. The central bank calls this a blackout period. It’s a time when its leaders stop shedding light on their views on the US economy and keep quiet about a number of decisions they might make during the meeting.
Not that there isn’t a lot of open-mouth politics ahead of next week. At least four regional Fed presidents said last week that aggressive rate hikes are needed to fight inflation, signaling support for continuing rapid increases in borrowing rates in their efforts to curb rising prices.
Investment markets are expecting another rate hike of three-quarters of a percentage point — the Fed’s fourth straight increase — at its meeting in early November. The last piece of economic evidence central bankers will receive before confirming market expectations will be personal consumption spending. September data is published on Friday next week.
PCE is the Fed’s favorite inflation barometer. It is slightly more dynamic than the better-known consumer price index. The CPI makes headlines but is a measure of a more static basket of goods and services.
The differences between the two refer to economics textbooks, not consumers. PCE is more likely to notice changes in what people are buying. Therefore, if shoppers are switching from name-brand crackers to brand-name crackers to save money, PCE should detect this better than CPI.
The latest data points to a slight cooling from the 41-year high that was reached in June — not that anyone is feeling it much, except maybe at the gas station. People know that prices go up and stay high. They see it in the dairy aisle, the shoe store, and vacation travel plans. But is the rate of growth slowing down significantly?
The Federal Reserve hopes so, but it is not going to relax its efforts to fight inflation by continuing to raise interest rates aggressively next month. The bankers made a lot of noise about it.
Tom Hudson is a financial journalist and director of content at WAMU Public Radio in Washington, DC. Follow him on Twitter @HudsonsView.