Key facts
- Core PCE inflation rose 0.2% in August.
- Overall prices increased 3.4% year-over-year.
- Second-quarter GDP growth revised up to 2.2%.
- Fed Chair Kevin Warsh has given little guidance on future rate hikes.
- New York Fed President John Williams stated there is 'no need for urgency' on rate hikes.
Cooler-than-expected inflation data in August could provide a reprieve for President Donald Trump and Republicans by potentially allowing the Federal Reserve to hold off on another interest rate hike before the midterm elections. The Bureau of Economic Analysis reported that core prices, a key inflation gauge excluding volatile food and energy costs, rose 0.2% last month. This figure is lower than anticipated by investors, who are now assigning better-than-even odds that the Fed will maintain current rates at its late October meeting.
Overall prices have climbed 3.4% over the past year, still exceeding the Fed's 2% target. The agency also revised upward its estimate for second-quarter Gross Domestic Product growth to 2.2%, from an initial 1.5%, signaling underlying economic strength.
The central bank had recently increased borrowing costs to combat inflation, which has been exacerbated by high oil prices stemming from the conflict in Iran. While markets largely anticipated the previous rate hike, Fed Chair Kevin Warsh has offered limited insight into the central bank's future path. New York Fed President John Williams, a voting member of the rate-setting committee, stated that there is "no need for urgency" in considering further rate increases, suggesting that policymakers have "time to gather more information."
Despite the positive inflation news, the U.S. economy faces a potential diesel fuel shortage, which could lead to increased business costs.