Fed's Price Stability Target Remains Elusive as PCE Inflation Surges

The upcoming Federal Open Market Committee (FOMC) meeting on September 16 may have already been decided by Fed Chair Kevin Warsh and his colleagues, despite the recent release of inflation data. The Bureau of Labor Statistics released August's inflation numbers on September 11, showing a headline inflation rate of 4.2% driven primarily by higher fuel prices.

While some investors believe that this decline in CPI retracement suggests that the FOMC can stand pat on interest rates, there is reason to think that Warsh and his peers have already made up their mind. The FOMC's policymakers are bound to uphold the dual mandate of maximum employment and price stability.

The Personal Consumption Expenditures (PCE) price index is the holy grail of inflation measures for the Fed, and its latest reading showed a 3.7% increase in July, above expectations of 3.6%. This is significantly higher than the Fed's 2% target, indicating that inflation remains a concern.

Fed Chair Kevin Warsh has signaled that the central bank may not be done fighting inflation, stating that financing conditions didn't look restrictive to him and that better price readings recently hadn't convinced him the trend was improving. He also introduced a loose timeline for the central bank to gauge its progress in combatting above-average inflation.