Volkswacht Bodensee - US Fed's favored inflation gauge cools in September

The personal consumption expenditures (PCE) price index eased to 2.1 percent in the 12 months to September, down from 2.3 percent in August, the Commerce Department announced in a statement.

This was in line with the median forecast from economists surveyed by Dow Jones Newswires and The Wall Street Journal, keeping the Fed on track to hit its long-term target of two percent in the not-too-distant future.

In a statement, US President Joe Biden hailed the reduction in inflation.

"While critics said we needed a recession to lower inflation, instead inflation has come down while our economy has grown more than 12 percent over the course of my Administration," he said, adding there was "more to do."

Given the surge in post-pandemic inflation, the fact that headline inflation now sits just a tenth of a percentage point away from the Fed's target is a significant achievement.

The Fed -- the independent US central bank -- is responsible for tackling inflation and unemployment by hiking or lowering interest rates to affect demand.

Policymakers have made progress in tackling higher inflation by keeping inflation-adjusted interest rates high. But US consumers remain unhappy with the higher cost of living, and the topic remains front of mind for many voters ahead of the election on November 5.

Both the Democratic candidate, Kamala Harris, and Republican contender Donald Trump, have floated proposals they say will help bring down the cost of essential everyday items like food and gas.

The PCE price index rose 0.2 percent between August and September, the Commerce Department said. This was in line with economists' expectations.

Excluding the volatile food and energy segments, the core PCE price index was unchanged at 2.7 percent from a year ago in September, slightly above expectations, and up 0.3 percent from a month earlier.

Personal income and disposable income both rose 0.3 percent last month, while the rate of personal saving as a percentage of disposable income fell slightly to 4.6 percent, suggesting that consumers spent more of their money in September than they did a month earlier.

Thursday's data release likely keeps the Fed on track to continue cutting interest rates next week, as it looks to boost demand in the world's largest economy after a prolonged period of tightening.

Futures traders see a probability of close to around 96 percent that the Fed will cut rates by a quarter of a percentage point next week, according to CME Group data.

"From the Fed's perspective, these data show enough progress on headline PCE prices for policymakers to continue cutting rates," economists at High Frequency Economics wrote in a note to clients.

"The strong spending and income growth tells them there is no need to cut aggressively to avert a recession," they added.

D.Bachmann--VB