New economic data challenges Fed chief's not-too-hot perspective
SPY•U.S. third-quarter GDP grew at a 3.4% annualized rate, while headline PCE inflation rose to 3.6% in September from 3.4% in August. Markets priced in roughly an 80% chance of a 25-basis-point Fed rate hike in December.
1. Growth and inflation rise
U.S. GDP grew at a 3.4% annualized rate in the third quarter, with consumer spending up 3.8% and business equipment investment up 20.9%. The growth rate exceeded the Fed’s 2% median estimate of long-run growth, while the PCE Price Index rose 3.6% in September after a 3.4% increase in August.
2. Rate decision ahead
The data may challenge Fed chief Kevin Warsh’s view that the economy is not too hot. The Fed held rates steady in a 10-2 vote, with Lisa Cook and Beth Hammack dissenting in favor of a rate increase. Markets saw roughly 80% odds of a 25-basis-point hike at the Fed’s December 8-9 meeting.
3. Inflation remains broad
The article said roughly 50% to nearly 60% of PCE items recorded annual price increases above 3% in September. KPMG chief economist Diane Swonk said inflation remained persistent, particularly in services, and BNY Investments’ Vincent Reinhart said he expected two more rate increases, with risks to the upside.
