A key inflation indicator came in lower than expected in September, the Commerce Department said Friday in a report delayed by the government shutdown, giving the Federal Reserve the green light to cut interest rates again.
The core personal consumption expenditure price index, which excludes volatile food and energy prices, showed a monthly increase of 0.2%, while the annual rate was 2.8%. The monthly rate was in line with the Dow Jones consensus, but the annual level was 0.1 percentage points lower. The core annual rate fell slightly from 2.9% in August.
Additionally, overall PCE rose 0.3% for the month, translating to an annual inflation rate of also 2.8%, according to the ministry’s Bureau of Economic Analysis. Both figures were in line with expectations, although the annual rate increased by 0.1 percentage points compared to August.
Federal Reserve officials use the PCE price index as their main policy tool to combat inflation. Although officials look at both metrics, they generally consider the core inflation rate to be a better indicator of longer-term inflation trends.
Goods prices rose 0.5% for the month as President Donald Trump’s tariffs continue to impact the economy. Prices for services only rose by 0.2%. Food rose 0.4% while energy rose 1.7%.
The report also showed that the personal savings rate was unchanged from August at 4.7%.
The publication was postponed for several weeks due to the government shutdown, which had led to a halt to all data collection and economic reports.
In addition to the inflation figures, the announcement also provided information on income and expenses.
Personal income rose 0.4% month-over-month, while spending rose 0.3%. Revenue was 0.1 percentage points above forecast, while expenses were 0.1 percentage points below forecast.
Stocks extended gains after the release as traders expect the Fed to cut interest rates by a quarter of a percentage point when it announces its rate decision on Wednesday.
Although the September data is retrospective, it is the last price reading the Fed will receive before its policy meeting next week. Prices in the futures market suggest it is almost certain that the Federal Open Market Committee, which sets interest rates, will approve another quarter-percentage point cut when the meeting ends on Wednesday.
However, policymakers were unusually divided over what the next steps on interest rates should be.
One FOMC faction favors additional cuts to address further weakness in the labor market, while another sees persistent inflation threats that would require more restrictive interest rate policy.
Recent labor market indicators point to a slow pace of hiring, with some private data points pointing to increasing numbers of layoffs. However, Labor Department data actually showed a decline in initial jobless claims last week.
A separate economic report on Friday showed consumer sentiment entering December was slightly better than expected.
The University of Michigan consumer survey came in at 53.3, up 4.5% from November and better than Wall Street’s estimate of 52. Inflation expectations also fell, with the one-year view falling to 4.1% and the five-year view falling to 3.2%, both at their lowest since January.
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