With all the talk of inflation, of labor markets, of interest rates — with that constant flow of numbers and projections and interpretations into the mix — there have been the monthly measurements. Is inflation back to the 2% goal of the Federal Reserve, which gets to decide how long interest rates remain high/?
There are some thoughts that it may have happened, though not yet officially appeared in the data. The September Consumer Price Index numbers came out last week. Compared to August, headline CPI was up 0.2% on a seasonally adjusted basis and 2.4% year-over-year unadjusted. The Producer Price Index was also down. Inflation seems to be drifting down toward that 2% Fed goal.
Still to come is the Personal Consumption Expenditures price index out of the Commerce Department. That’s where Goldman Sachs economists come in. They projected last Friday that PCE for September, which comes out on Halloween, would show a 12-month inflation rate of 2.04%, as CNBC reported. The Fed would round that down to 2%, giving it a chance to claim victory.
“The overall trend over 12, 18 months is clearly that inflation has come down a lot, and the job market has cooled to a level which is around where we think full employment is,” Federal Reserve Bank of Chicago President Austan Goolsbee told CNBC. “We’d like to get both of them to stay in the space where they are right now.”
Fair enough. But if Goldman Sachs economists are right and there’s a treat instead of a trick at the end of October — a question badly in need of an answer is what happens then.
Say inflation is back to 2%. Does it mean big cuts to interest rates/? The economy is already growing. Labor markets seem reasonably strong, though not necessarily evenly across the socioeconomic structure of the country. Lower inflation doesn’t reduce price hikes that make living more difficult for so many.
Apollo Global Management chief executive officer Marc Rowan thinks that the Fed should not immediately cut rates. “Financing is available,” he told Bloomberg TV.”Real estate prices are going up. It is not clear we need more rate cuts.”
Maybe speculation that the so-called natural interest rate that neither drives the economy to nor restrains it from growth has risen. Expectations of ultra-low rates of the past might be a dangerous pipe dream. Dropping rates could overly stimulate the economy and ignite a rocket to send inflation back up to previous heights. It’s a situation that needs to be handled with care.