December 6, 2018 | By Robare & Jones
U.S. economic data released last week shows inflation stagnating and consumer spending at the highest level it’s been in seven months. PCE core inflation, the Fed’s preferred inflation measure, rose 1.8 percent. It was the lowest level since February and is below the Fed’s target of 2 percent. Consumer spending increased by 0.6 percent in October, while wages rose by 0.3 percent. Both data points suggest the consumer remains a source of strength in the U.S. economy.
The lower inflation data reinforces other data indicating the economy is slowing. Investors worried the Fed would keep raising rates despite how low inflation has contributed to recent volatility. But, when the minutes from the Fed’s most recent meeting were released, the rate hike path for 2019 appeared less certain. While the minutes suggested the plan to raise rates in December is a foregone conclusion, the Fed indicated it would be more flexible and pay close attention to economic data and react accordingly. Fed Chair Jerome Powell stated interest rates were just below neutral, which is a level where interest rates neither speed nor slow economic growth. This soothed many investors’ concerns on whether interest rates would be raised too high and hurt economic growth.