The Fed Can Wait
For a quick rundown of the challenges Federal Reserve policy makers will be sorting through when they meet this week, last week’s economic data fits the bill. Start with gross domestic product. The Commerce Department on Thursday reported that the economy grew at a blistering 4.9% annual rate in the third quarter, marking the fastest pace since the fourth quarter of 2021.
The last time it grew as quickly in the prepandemic period was the third quarter of 2014. But the GDP report also showed that inflation’s cooling trend continued, a point underscored by monthly consumer-price data that the Commerce Department released Friday. Overall consumer prices were up 3.4% in September versus a year earlier, while core prices, which exclude food and energy items in an attempt to better capture inflation’s underlying trend, were up 3.7%.
That is still too hot for the Fed, which is aiming for 2%, but the September year-over-year increase in core prices was the smallest since May 2021. One thing policy makers will need to confront is that the economic projections they released following their September meeting look as if they probably will be wrong. The median forecast called for fourth-quarter GDP to be 2.1% above its year-earlier level.
For that to happen, GDP would need to contract at a 0.7% annual rate in the fourth quarter. The median forecast also called for fourth-quarter core prices to be up 3.7% from a year earlier. For that to happen, inflation readings would need to reaccelerate.
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