Fed Quandary: Core Inflation, Incomes and Spending Rising

Figure 1. Consumers continued to spend over July-August span

Sources: Bureau of Economic Analysis and The Conference Board.

Trusted Insights for What’s Ahead^®

• Ongoing moderation in total inflation towards the Fed’s 2-percent target supports further interest rate cuts.
• However, robust household spending especially on services, and a continued influx of income, especially from employment, poses upside risk to real GDP growth.
• Moreover, heavy consumption of services may continue to place upward pressure on super core Inflation given strong consumer demand and labor shortages that are keeping wage and benefits growth elevated.
• Indeed, both core (total less food and energy) and super core inflation (services less housing and energy) hastened on a year-ov