Economic data under close watch by the Federal Reserve - Wells Fargo

Despite inflation’s relatively tepid trend, FOMC members have continued to signal that they are set to announce the start of balance sheet normalization at next week’s meeting, explained analysts from Wells Fargo. 

Key Quotes: 

“Consumer prices rose 0.4 percent in August, the largest monthly jump since January. Leading the index was a 2.8 percent rise in energy costs. Prices for gasoline had already been inching higher ahead of the Harvey-related surge late in the month. To what will likely be a relief to Fed officials, core inflation rose 0.2 percent in August, which was the largest monthly gain since February.”

“August’s gain should help alleviate concerns among Fed members that the slowdown in inflation that began in the spring might prove more lasting. FOMC members have continued to telegraph that they are set to announce the start of balance sheet normalization at next week’s meeting.”

“We do not expect the inflation data to get in the way of that plan. What is likely to be affected, however, is the Fed’s Summary of Economic Projections. There will be three more readings on CPI and PCE inflation before the FOMC’s December meeting, but the soft patch hit in prior months is likely to lead to lower estimates of year-end core inflation, which may push out the members’ projections for the timing of the next rate hike.”