Fed’s preferred measure of inflation rises to 4.2% – highest level since 1990

The Federal Reserve’s preferred measure of inflation in the US has reached its highest level since 1990, as Fed Chair Jerome Powell comes under increasing scrutiny over his easy money policy.

Federal data from Friday showed that the Personal Consumer Expenditure Price Index (PCE) is up 4.2 percent in the past 12 months, the largest annual increase since November 1990.

The core PCE index, which excludes volatile food and energy, rose 3.6 percent year-on-year, the largest 12-month increase since 1991 and up 3.6 percent in June.

On Friday, Powell will deliver a much-anticipated speech at the influential Jackson Hole economic symposium, which will be watched for clues as to when the Fed plans to scale back its monthly $120 billion bond purchases.

The Personal Consumer Expenditure Price Index (PCE) has been seen above since 1960. The annual increase of 4.2 percent in July was the largest increase in 12 months since 1990

On Friday, Fed Chair Jerome Powell (seen last month) will deliver a long-awaited speech at Jackson Hole's influential economic symposium.

On Friday, Fed Chair Jerome Powell (seen last month) will deliver a long-awaited speech at Jackson Hole’s influential economic symposium.

The main PCE price index is the Federal Reserve’s preferred inflation measure for its flexible target of 2 percent, and is a complementary measure to the more widely known consumer price index, which held steady last month at its 13-year high.

Powell has long maintained that rising inflation is “transient” and because of temporary problems in the supply chain, and expresses his reluctance to tighten temporary policies quickly.

But several powerful Reserve Bank presidents have publicly expressed their desire to start discussions about “phasing out” monthly purchases of $80 billion in federal debt and $40 billion in mortgage-backed securities.

Atlanta Fed president Raphael Bostic said it would be “reasonable” for the Federal Reserve to cut its bond-buying program from October if job growth continues. fast.

“I’d be happy with an October timeline to start with” if U.S. job growth in August matches the nearly a million jobs added in each of the previous two months, Bostic told Reuters in an interview published Friday. .

The Fed could announce a plan to “wind down” asset purchases at its policy meeting on Sept. 21-22. A change is expected sometime this year, while debates continue over when to announce the plan and how quickly to cut purchases.

Atlanta Fed President Raphael Bostic (seen in 2018) became the last U.S. central banker to call on Powell to begin tapering off and end bond purchases soon

Atlanta Fed President Raphael Bostic (seen in 2018) became the last U.S. central banker to call on Powell to begin tapering off and end bond purchases soon

Consumer prices have risen for ordinary families, but the Fed is reluctant to rule in the 'hot' economy until further progress is made in restoring jobs lost by the pandemic

Consumer prices have risen for ordinary families, but the Fed is reluctant to rule in the ‘hot’ economy until further progress is made in restoring jobs lost by the pandemic

The PCE index (blue) and CPI index (red) are the two main measures of US inflation

The PCE index (blue) and CPI index (red) are the two main measures of US inflation

Bostic said that once the winding down began, he was “certainly looking to get this done as soon as possible” and could put a complete end to the Fed’s asset purchases “by the end of the first quarter.” 2022.

The Fed has two central mandates: keeping inflation at 2 percent a year and achieving “maximum employment.”

The two mandates often conflict, as the Fed tries to control inflation by raising interest rates, boost employment by lowering interest rates and pump money into the economy through bond purchases.

The Fed sees a controlled amount of inflation as good because it encourages spending and business investment, rather than hoarding cash.

But spiraling inflation can be dangerous, eroding consumers’ purchasing power and hitting low-income families and older retirees the hardest.

The US central bank lowered its overnight interest rate benchmark to near zero last year and continues to flood the economy with money through monthly bond purchases.

Federal data released earlier this month showed that for the 12 months through July, the consumer price index rose 5.4 percent, an unchanged level from June

Federal data released earlier this month showed that for the 12 months through July, the consumer price index rose 5.4 percent, an unchanged level from June

However, there are signs that inflation has either peaked or is close to peaking.

Data released Friday showed the PCE index rose 0.4 percent month-on-month in July, compared to its 0.5 percent monthly rate in June. The core index rose 0.3 percent month-on-month, from 0.4 percent in June.

Incomes, which fuel future spending, rose 1.1 percent in July, partly as a result of strong job growth that month.

The government reported Thursday that the total economy, measured by gross domestic product, rose a solid 6.6 percent in the April-June quarter.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.3 percent last month, compared to a 1.1 percent increase in June.

Credit card data suggests spending on services such as airfare and cruises, as well as hotels and motels, has slowed this month, a sign of caution among some Americans amid rising COVID-19 cases caused by the Delta variant.

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