December 4, 2023 — Consumer Spending and Inflation Cool in October


Consumer spending and inflation were lower in October. The Commerce Department released the news that consumer spending rose 0.2 percent in October, down from 0.7 percent in September, the smalljest increase since May. Inflation cooled as well, with the Fed’s preferred inflation indicator; the personal-consumption index; up 3.5 percent year over year. Core prices are up 2.5 percent on a six-month annualized rate, well down from the 4.5 percent seen for the 6-months from October ‘22 to April of this year.

The Fed is closely following the data, are interest rates are high enough to curtail inflation and close in on their 2 percent target?  Rates are tighter now than they have been in 25 years. But even if the Fed doesn’t raise rates at their meeting on December 12-13, it is unlikely rates will come down in the short term. New York Fed President John Williams said last week he expects the Fed will continue with their restrictive interest rate policy “for quite some time”, as they do not want to see inflation rebound.

Some economists see the slowing in prices as an indicator of a soft-landing, allowing the economy to avoid a recession. But the US economy is consumer driven, and a soft landing will rely on spending to slowdown not to stop.