One Last Inflation Reading…

With other central banks beginning to pull back on their aggressively hawkish language, many wonder if the Federal Reserve will do the same at next Wednesday’s meeting. 🤔

Today was the last inflation reading before then and did not bolster the dovish argument.

The Fed’s preferred inflation measure, core personal consumption expenditures (PCE), rose 0.5% MoM and 5.1% YoY. The monthly increase was in-line with expectations, and the annual increase was 0.1% below. Headline PCE rose 0.3% MoM and 6.2% YoY, the same as in August. 🔺

On top of that, personal income increased by 0.4%, slightly above the 0.3% expected. However, that number is flat after adjusting for inflation. And personal consumption expenditures, which economists use to track spending, rose more than the 0.4% expected at 0.6%. But, adjusted for inflation, spending rose half that at 0.3%.

The personal savings rate continues its descent, falling to 3.1%, as consumers use more of their disposable income to maintain their standard of living. 🔻

The good news is that the economists did a better job forecasting September’s numbers. The bad news is these numbers do little to ease fears that inflation is still too high and remains entrenched within the economy. As a result, expectations remain for a 75 bp hike next week, followed by more moderate increases into early 2023.

Elsewhere in the economy, housing remains an absolute disaster. September’s pending home sales fell 10% MoM and 31% YoY, far worse than expected. Housing prices are beginning to fall as demand craters, but they’ve got a long way to go before buyers can afford to step back in. 🏘️

Lastly, consumer sentiment continues to inch up after hitting all-time lows during the summer. But overall, pessimism continues to reign supreme. 😨