Economists say surging inflation data should not derail another Fed rate cut

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Key indicator of inflation, the price index consumption, reached its highest level in 11 years in August, according to new data released Thursday by the Bureau of Labor Statistics.But this should not throw cold water on the & nbsp;Federal Reserve& nbsp; expected rate cuts next week, according to economists. "data-reactid =" 15 "> The consumer price indicator, key indicator of inflation, reached its highest level in 11 years in August, according to new data released Thursday by the Bureau Economists, however, believe that this should not throw cold water on the expected reduction in Federal Reserve rates next week.

The basic consumer price index, which excludes food and energy prices, rose 2.4% in August compared with August, exceeding the target of 2% by the Fed on inflation. Within the CPI, the prices of used cars as well as medical goods and services have all increased.

But the consumer price index is not the Fed's preferred measure of inflation, but the price index for personal consumption expenditure (PCE). This index calculates inflation differently.

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"Health care is important. Medical services experienced a 0.9% increase in the CPI, but this will not happen at the PCE, "wrote Neil Dutta, director of the US economy division of Renaissance Macro Research, in a note. addressed to customers after the publication of the CPI. "The CPI only covers non-refundable expenses, while PCE covers payments made on your behalf."

Dutta expects a 1.7% increase from its main PCE in August, which would be below the Fed's 2% target. This figure should be published by the Bureau of Economic Analysis later this month.

In general, the Fed reduces interest rates to stimulate or create inflation, which is why some market participants may question the idea of ​​short-term rate reductions after reading the report. on Thursday's inflation.

"[The CPI reading] That will not stop the Fed from lowering interest rates again next week, but that gives an additional reason to believe that the market's expectations for further easing will ultimately be disappointed. " , wrote Andrew Hunter, Senior Economist at Capital Economics. customers on Thursday.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "European Central Bank cuts interest rates"data-reactid =" 33 ">European Central Bank cuts interest rates

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "While the market is waiting for the Fed's decision of the next week, the European Central Bank on Thursday & nbsp;ad& nbsp; a reduction in its deposit rate – the first in three years. "data-reactid =" 34 "> While the market is awaiting the decision of the Fed, the European Central Bank announced Thursday a reduction in its deposit rate, the first cut in three years.

<p class = "canvas-atom web-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This has elicited the admiration of President Trump on Twitter, which has & nbsp;long criticized& nbsp; Fed Chairman Jerome Powell, who raised rates too quickly last year and has not followed other central banks around the world, such as the ECB, by offering more monetary stimulus. "Data-reactid =" 35 "> This prompted President Trump's admiration on Twitter, which has long accused Fed Chairman Jerome Powell of raising rates too quickly last year and not follow other central banks around the world, like the ECB, for more monetary stimulus.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "This is what President Trump & nbsp;tweeted& nbsp; following the announcement of the ECB: "data-reactid =" 36 "> That's what President Trump tweeted following the announcement of the ECB:

"The European Central Bank, acting quickly, reduces its rates by 10 basis points. It tries and manages to depreciate the euro against the dollar very hard, which is detrimental to US exports … And the Fed sits, sits and rests. They are paid to borrow money, while we pay interest!

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Scott Gamm is a Yahoo Finance journalist. Follow him on Twitter @ScottGamm."data-reactid =" 64 ">Scott Gamm is a Yahoo Finance journalist. Follow him on Twitter @ScottGamm.

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