On Friday the latest PCE data was released, showing that inflation continues to accelerate.

PCE (Personal Consumption Expenditures) is the preferred gauge that the Fed uses to determine things like rate hikes. This index, excluding food and energy, rose .6% in August vs the .5% they expected, after being flat in July. When gas and energy are included, headline PCE increased by .3% in August, compared with a decline of .1% in July.

On a year-over-year basis, core PCE increased 4.9%, more than the 4.7% expected.

This latest data shows that inflation is actually increasing slightly, not decreasing, despite the Fed hiking interest rates at the fastest pace since the 1970s.

It is important to note that there is a few months lag between the Feds rate hike decisions and when that shows up on the data, but with energy prices expected to rise again this winter, it’s not a good sign where things are headed.

With inflation still running well above the 2% target, expect more large interest hikes going forward. At this point, another hike of at least .75 basis points is almost guaranteed when the Fed meets in November and I wouldn’t be surprised if they go for a full point.

In October watch for September unemployment numbers and PPI and CPI numbers. If those come in higher than expected, it’s likely going to put pressure on the Fed to continue to raise rates at the current pace or get even more aggressive.

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