Core inflation's unexpected rise last month could stall hopes for rate cuts, delivering fresh economic challenges to the Biden-Harris administration just ahead of the Federal Reserve’s key policy meeting.
In a potential setback for the Biden-Harris administration, core inflation rose more than anticipated in September, casting doubt on the likelihood of swift rate cuts. The Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) price index, saw a year-over-year increase of 2.7%, slightly higher than forecasted and marking its largest monthly gain since April.
The persistent inflation pressures suggest that the Fed, led by Chair Jerome Powell, may need to take a slower approach to future rate cuts. While overall inflation settled at 2.1%—the lowest in nearly three years—the core PCE, which excludes food and energy, reflects resilient consumer spending, ongoing wage growth, and impacts from recent labor strikes.
The economic backdrop of higher inflation and a solid labor market complicates matters for the Fed, which is expected to announce its latest rate decision next week following its Nov. 6-7 policy meeting. Many economists anticipate a cautious quarter-point cut, though Fed officials will likely weigh the effects of recent storms and potential job market disruptions before making any significant moves.
For the Biden-Harris administration, which has touted economic recovery efforts, rising core inflation could prove challenging, particularly as volatile markets and the upcoming election introduce additional economic uncertainty.
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