WASHINGTON (Reuters) – Is the U.S. economy stuck with such high inflation that it will take a recession to fix it. Or are prices about to crater and leave the Federal Reserve with a load of financial stress, slowed growth, and higher-than-needed interest rates to answer for?
From the lingering impact of the COVID-19 pandemic to the prospect of a tactical nuclear weapon being used in Europe or a new energy shock, a prolonged surge of rising prices is not hard to imagine.
Data scheduled to be released on Friday will likely show the Fed’s preferred measure of inflation continued to run at roughly three times the U.S. central bank’s annual target of 2% last month. Economists polled by Reuters expect the Personal Consumption Expenditures Index, when stripped of volatile food and energy costs, to have climbed 5.2% on a year-over-year basis in September. The all-inclusive figure that forms the basis for the Fed’s target is likely to come in around 6%.
But even the most hawkish Fed officials feel that absent some outside event to reignite a surge in price pressures, inflation will fall in coming months as the impact of rate increases trims demand, competition in the marketplace intensifies, and supply chain pressures ease. Even the passage of time, putting distance between the current data and last year’s rapid price run-up for things like used cars, will help the headline numbers.
Graphic: Rates up, inflation sideways…
