Accelerating Economy Fuels Inflation Concerns as Fed Weighs Rate Hike

Despite elevated inflation, the US economy is accelerating at an even faster pace than initially estimated. Household spending showed significant growth in September, and revised second-quarter GDP data revealed that the economy entered midyear on stronger footing than previously thought.

The Federal Reserve's preferred measure of underlying inflation remains above 3%, supporting a potential 25 basis-point rate increase by year-end. Personal income rose by only 0.2% in August, while spending increased by 0.9%. Inflation-adjusted income has been flat or negative since March, contributing to falling consumer confidence.

The trade deficit widened from $115 billion to $132.6 billion in August, but the Atlanta Fed tracker still shows a 5% pace of growth. With energy costs and demand likely to keep inflation elevated, many expect the Federal Reserve to raise rates at least once by year-end.