October 18, 2021 — Pressure on the Fed as Inflation Rises


September’s inflation is up 5.4 percent year over year, the largest increase since 2008.  Prices are up 0.4 percent from August; while core inflation, excluding food and energy, was up 0.2 percent in September and 4 percent year to date, slightly below of a 30 year high of 4.5 percent in June.  Average hourly wages rose by 4.6 percent in September; robust, but not enough to keep up with inflation. Cost-of-living adjustments to social security payments are set to rise 5.9 percent in 2022, the highest jump in 39 years.

Jobless claims declined to a seasonally adjusted 293,000, the first week since the pandemic that jobless claims were below 300,000, though still above the 2019 average.  The PPI (producer price index) a measure of prices suppliers charge businesses, rose 8.6 percent year-over-year in September, the largest 12-month increase since the data has been collected in 2010.

All this is putting pressure on the Federal Reserve, they have been insisting inflation is transitory and no action on their part is required.  Granted, much of the prices increases are a result of supply-chain issues creating an imbalance between supply and demand, but this jump in inflation makes it more likely the Fed will begin reducing its $120 billion/month in bond purchases while waiting to raise interest rates. Most analysts think the Fed will announce a policy change at their next meeting November 2-3.