The Federal Reserve has two mandates: full employment and price stability. With a steady gain in jobs, the US economy is getting very close to full employment, at least when looking at the unemployment rate. Also, the return of previously discouraged people back to the workforce is encouraging.
However, inflation was the weaker spot. While the US does not suffer the deflation flirts seen in Japan and in the euro-zone, the absence of rising inflation when jobs are aplenty has puzzled many. So has the lack of wage growth.
On the last day of Q3, Yellen, and her colleagues get a small piece of good news: their preferred measure of inflation, the Core PCE Price Index, edged up one-tenth of a percent to 1.7% on a yearly basis in the month of August. After long months at 1.6% and with weaker months beforehand, this is good news. The “Holy Grail” for central bankers is 2%, and this target is becoming closer, not further away, as overseas.
Other measures, published at the same time, came out within expectations: personal spending stayed flat, but it came on top of an upwards revision for July. Personal income rose by 0.2% as projected.
This strengthens the case for a rate hike in December. The economy is still growing at a slow pace, but perhaps it’s better to have slow and frustrating growth than a boom followed by a painful crash.
A rate hike also depends on the results of the elections.
More: We Expect Clinton To Win In November, Fed To Hike In December, & USD To Recover – Credit Agricole
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