Underlying inflation pressures eased in October, NY Fed says

The underlying inflation pressures hitting U.S. consumers eased in October compared to September, according to a new report released by the Federal Reserve Bank of New York on Monday.

The New York Fed said its multivariate core trend (MCT) inflation reading came in at 2.6% in October, down slightly from September’s 2.88% reading. The bank said the higher level of the MCT compared to its pre-pandemic average “is in large part due to the sector-specific trends in housing and services ex-housing.”

The New York Fed’s MCT index aims to measure the persistence of inflation and how broadly inflationary pressures on consumer prices are changing. The MCT index peaked at 5.44% in June 2022, and the October reading closely matched the six-month trend of the personal consumption expenditures index – the Fed’s preferred inflation gauge – which stood at a 2.5% rise in October.

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The report comes as central bank officials weigh economic data ahead of the Fed’s final policy meeting of the year, which is set to occur next week on Dec. 12-13 and could bring another interest rate hike or a continued pause.

Federal Reserve officials have sought a “soft landing” for the U.S. economy since the current inflationary cycle accelerated dramatically in 2022, peaking at a 40-year high of 9.1% in June 2022 before gradually declining to 3.2% in October 2023 – which remains well above the Fed’s 2% target.

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To tamp down inflation, the Fed aggressively raised interest rates through the benchmark federal funds rate 11 times in 16 months – going from near zero to above 5%, which is the fastest monetary tightening the Fed has undertaken since the 1980s. Raising interest rates tends to slow economic activity and dampen the labor market, although both have avoided significant declines despite the rate hikes to date.

Federal Reserve Chairman Jerome Powell said Friday that the economy is “better balanced” and that “we are getting what we want” regarding the economy’s trajectory. He added, “While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective.”

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Powell and members of the Federal Open Market Committee (FOMC), which sets the course of monetary policy, will weigh whether inflation and economic activity are resilient enough to warrant another rate hike or if signs of slowing support a continued pause.

New York Fed President John Williams said Thursday that “based on what I know now, my assessment is that we are at, or near, the peak level of the target range of the federal funds rate.”

Williams added that he thinks the Fed will close in on its target in 2025. His comments and those by Powell come after two other voting members of the FOMC expressed differing views on the need for more interest rate hikes in comments last week.

Michelle Bowman said that more rate hikes are needed “to bring inflation down to our 2 percent target in a timely way” while emphasizing that “monetary policy is not on a preset course.”

Christopher Waller said that he is “encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand” but that “inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained.”

FOX Business’ Megan Henney and Reuters contributed to this report.