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Fed Inflation Gauge Holds At 3.6% in September; Personal Spending Slows

Americans pulled back on spending last month, data from the Bureau of Economic Analysis indicated Friday, as inflation pressures hold near the highest levels in three decades.

The Federal Reserve's preferred measure of U.S. inflation showed few signs of easing last month, according to data published Friday, although core consumer prices remain stubbornly close to their highest levels in three decades, putting a damper on overall spending. 

The core September PCE Price Index rose 3.6% from last year, and 0.2% on the month, the Bureau of Economic Analysis reported, modestly slower than the Wall Street forecast but still adding to investors concerns about the sticky nature of consumer prices. The August increase was 3.6%.

The headline PCE index was up 0.3% on the month and 4.4% on the year, near to the highest levels since 1990. Personal incomes fell by a stronger-than-expected 1%, while personal spending rose 0.6%, the BEA noted, just ahead of the Street consensus forecast but down from the August tally of 0.8%.

"We think it is entirely reasonable to expect wage growth to slow as labor supply rebounds, which ought to be clear over the course of Q4," said Ian Shepherdson of Pantheon Macroeconomics. "If that doesn't happen, and wage growth continues to run at this pace, then: Game Over. 

“'Transitory' would have to be abandoned and the Fed would have no choice but to start hiking as soon as June, and all asset prices would be under severe pressure," he added. "To be clear, that’s not our base case, but the risks are high and rising."

U.S. stocks were little-changed following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 25 point opening bell dip and those linked to the S&P 500 priced for an 20 point pullback from last night's record close.

Benchmark 10-year notes edged higher, to 1.605% while the dollar index was pegged at a session high of 93.601 against a basket of six global peer currencies.

Earlier this month, the Bureau of Labor Statistics pegged headline consumer price inflation at 5.4%, the highest since 2008, but noted that so-called core inflation, which strips-out volatile components such as food and energy prices, eased to 4%.

The recent run of inflation gains, in fact, prompted the U.S. Social Security Administration to lift its cost-of-living adjustment for 2022 by the most in nearly four decades, giving nearly 65 million retirees a 5.9% boost -- or an additional $91 payment to the $1,543 average monthly benefit total.