Jump In Consumer Spending Is Transitory, Price Deflation Coming Up

The Fed meets today and Fed Chair Janet Yellen will make another superficial statement of some sort. Most likely, she will reiterate some mush about transitory low inflation while noting a surge in consumer spending. It’s the jump in consumer spending that’s likely to be transitory.

Target practice Image from MarketWatch

The Wall Street Journal reports Inflation Remains Below Fed’s Target as Officials Meet to Set Policy.

Federal Reserve officials begin their two-day policy meeting Tuesday amid fresh signs that inflation remains lower than they would like, despite strong economic growth.

They have penciled in a rate rise before year’s end, but some officials have said they want to see evidence that inflation is rising toward their 2% target before approving such a move.

Other officials say they should continue raising rates very gradually because they expect inflation to pick up eventually and they don’t want to let the economy overheat. Other recent data show household spending, supported by a strong labor market and upbeat consumer sentiment, is fueling solid growth.

Consumer spending rose a seasonally adjusted 1% in September from August, the largest monthly gain in eight years, the Commerce Department said Monday. Again, the recent hurricanes played a role, driving a 3.2% increase in durable goods—long-lasting products like cars and refrigerators—as many households replaced hurricane-damaged property.

Fed is Clueless

Some Fed officials want to see inflation headed towards 2% before raising interest rates again, others are worried about overheating.

The Fed is clueless, but it does not matter. They have penciled in a rate hike in December so hike in December they will. The Fed can always find an excuse to do what it wants, as long as the market is willing to go along.

I do not suggest that interest rates belong at 1.0% or any other specific spot. I do not know where they should be, and neither does anyone on the Fed. There should not be a Fed at all.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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