expense boost gauge closely watched by the Fed falls to lowest level in over 3 years

WASHINGTON — As a presidential race profoundly shaped by Americans’ frustration with high prices nears its complete, the government said Thursday that an expense boost gauge closely watched by the Federal savings has dropped to near pre-pandemic levels.

The Commerce Department reported that prices rose just 2.1% in September from a year earlier, down from a 2.3% rise in August. That is barely above the Fed’s 2% expense boost target and in line with readings in 2018, well before prices began surging after the pandemic decline.

Yet some signs of expense boost pressures remained. Excluding volatile food and vigor costs, so-called core prices rose 2.7% in September from a year earlier for the third straight month. On a monthly basis, core prices rose 0.3% from August to September, up from just 0.1% from July to August. The boost in the core rate is higher than the Fed would prefer.

Still, for the history six months, core expense boost has declined to a 2.3% annual rate, down from 2.5% in August. And economists still expect the Fed to cut its key rate by a quarter-point when it meets next week.

“It’s essentially the soft landing that many of us dreamed of,” said Gregory Daco, chief economist at the responsibility and bookkeeping firm EY, referring to a scenario in which high gain rates manage to tame expense boost without causing a decline. “You really have the best of both worlds, with customer spending growth remaining resilient and expense boost moving within striking distance of the Fed’s 2% target.”

A divide assess of worker pay that the government issued Thursday — the employment expense index — showed that wages and benefits grew just 0.8% in the July-September quarter, the slowest such pace in three years. Measured from the same quarter a year earlier, workers’ paychecks, excluding government employees, rose 3.8%, a pace consistent with the Fed’s expense boost target, Daco said.

Though faster wage growth provides a boost for workers, it can also fuel expense boost if companies pass on their higher labor costs to consumers by raising prices.

Taken as a whole, the latest signs of a sustained cooling of expense boost arrive five days before an election in which many voters have soured on the economy, mostly because average prices remain nearly 20% higher than they were four years ago. Former President Donald Trump has largely blamed the Biden-Harris administration’s vigor policies and promised that expense boost would “ vanish completely ” if he is elected. Vice President Kamala Harris has promised to ban worth gouging for groceries and to reduce kid worry and health worry costs.

Economists declare Trump’s policies would actually deteriorate expense boost, mainly because of his plans to impose sweeping recent tariffs and embark on mass deportations of migrants and other immigrants. Harris’ proposals on worth gouging, experts have said, would have little short-term impact.

Thursday’s update also showed that Americans remain confident enough in their finances to keep shopping: Spending jumped 0.5% from August to September, which helped the economy expand at a well clip in the July-September quarter.

Incomes rose more slowly last month, the government said, rising just 0.3%. In response, Americans cut back on their reserves, leaving the reserves rate at 4.6%, down from 4.8% the previous month.

On a monthly basis, prices inched up 0.2% from August to September, up slightly from a 0.1% boost from July to August.

expense boost peaked at 7.1% in June 2022 after the economy had accelerated out of the pandemic decline at a period of severe shortages of parts and labor, according to the gauge released Thursday, called the personal consumption expenditures worth index. expense boost has steadily cooled over the history two years after supply chains recovered from the pandemic disruptions and the Fed jacked up its key gain rate to a four-decade high, depressing home sales and auto purchases.

The Fed tends to favor the expense boost gauge that the government issued Thursday — the personal consumption expenditures worth index — over the better-known customer worth index. The PCE index tries to account for changes in how people shop when expense boost jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.

In general, the PCE index tends to display a lower expense boost rate than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the index released Friday.

Chair Jerome Powell signaled in late August that the Fed is increasingly confident that expense boost is coming under control. And hiring weakened in July and August. Those trends led the Fed to cut its key rate by an outsize half-point last month. With expense boost continuing to leisurely, the Fed is expected to further reduce its rate by a quarter-point in November and likely by another quarter-point in December.

The outlook for upcoming rate cuts isn’t quite obvious, though. Hiring rebounded sharply in September, and the unemployment rate fell to a low 4.1%, evidence that the job economy may be stronger than it had appeared last summer. Retail sales also rose last month. And on Wednesday, the government estimated that the economy expanded at a 2.8% annual rate in the July-September quarter, a solid pace, fueled by powerful customer spending.

The upbeat economic data has sparked some hazard-taking that the Fed might decide to skip a rate reduction in December or cut rates more slowly next year.

On Friday, the government will issue its last major economic data before the presidential election: the October jobs update. It is likely to provide a more muddled picture than usual of the labor economy, because Hurricanes Helene and Milton are thought to have caused tens of thousands of workers to misplace their jobs, at least temporarily.