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Explainer: Charting the Fed's data flow

Explainer: Charting the Fed's data flow


Explainer: Charting the Fed's data flow

(Reuters) - The Federal Reserve held its benchmark overnight interest rate steady at its Sept. 19-20 policy meeting. New data will shape whether the U.S. central bank continues to stand pat at its Oct. 31-Nov. 1 meeting or proceed with another rate increase.

The Fed's target policy rate has been raised to the 5.25%-5.50% range from near zero in March of 2022, and inflation measured by the Fed's preferred personal consumption expenditures price index (PCE) was 3.5% in August, compared to a peak of 7% last summer.

While Fed Chair Jerome Powell has said the pieces of the low-inflation "puzzle" may be aligning, he does not trust it yet.

Here is a guide to some of the numbers shaping the policy debate:

INFLATION (Released Sept. 29, next release Oct. 12):

A key inflation measure fell in August, adding to what many economists feel is likely to be a steady disinflation. The PCE price index, stripped of volatile food and energy costs, rose 3.9% on a year-over-year basis compared to 4.3% in July, and recent month-to-month increases have averaged close to the Fed's 2% target. The headline rate did increase slightly, from 3.4% to 3.5%, but largely on the basis of energy costs. The Fed uses the PCE measures to set its 2% inflation target, but the decline in the "core" measure will be seen as evidence of slower price increases ahead.

Consumer price inflation rose for the second straight month, to 3.7% in August versus 3.2% in July. But the rise was largely the result of higher gas prices, which can be volatile and which Fed officials discount in analyzing price trends. More important to the central bank, underlying "core" inflation stripped of energy and food costs continued its decline, falling to 4.3% on a year-over-year basis compared to 4.7% in July.

While the overall picture is somewhat mixed, the inflation data in recent months likely doesn't change the policy outlook. But it does highlight the time it may take for Fed officials to be confident in a continued inflation decline.