October 16, 2023 — Inflation Eases to 3.7% in September

OCTOBER 16, 2023 – INFLATION EASES TO 3.7 PERCENT IN SEPTEMBER

Prices rose 3.7 percent, on an annual basis, for the second month in a row. Though inflation is down from a year ago, it is still running at close to double the Feds targeted 2 percent. On a monthly basis, inflation is up 0.4 percent in September versus 0.6 percent in August.  Core inflation is up 4.1 percent from September 2022, in line with expectations.

The inflation data does not give a clear indicator to the Fed. Inflation is slowing, but not as quickly as hoped given the aggressive rate increases over the last 18 months. The Federal funds rate is currently in the range of 5.25 percent to 5.5 percent, the highest it’s been since 2000. Expectations are the Fed will not act at their next meeting November 1, but there is a 40 percent chance rates will rise again at the December meeting.

Despite the stubbornness of inflation, the probability of a recession in the United States has been declining with stabilization in the banking sector, resilience in the labor market and rising real incomes.  For the first time in over 12 months, economists put the likelihood of a recession in the next year below 50 percent. GDP is expected to rise to 2.2 percent in Q4 2023. The economy is expected to keep growing in 2024 and 2025, with the unemployment rate holding close to 4 percent, near the historic low.