The good news is that the Federal Reserveâ€™s preferred measure of inflation may be bottoming, but the bad news is the American consumerâ€™s purchasing power declined by -4.8% in the 12 months ended August 31.
The mixed results are captured in this chart showing the Personal Consumption Expenditure Deflator (PCED), the inflation index the Federal Reserve refers to in its policy pronouncements.
The PCED declined three-tenths of 1% in August, which is good news. Inflation peaked at a 7% annual rate in June 2022 and declined in July, and Fridayâ€™s release showed the decline inflation was extended in August. Thatâ€™s good news.
However, Core PCED, which excludes energy and food prices because they are highly volatile, ticked two-tenths of 1% higher in August. Though it was not a surprise, the Core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy. Its rise in August means the Fedâ€™s interest rate increase cycle is not over. The Fed hiked rates five times this year, including three increases of three-quarters of 1% and its aggressive effort to reduce inflation to 2% is widely expected to result in a recession in the months ahead.
The Standard & Poorâ€™s 500 stock index closed this Friday at 3,585.62. The index lost -1.51% from Thursday and -2.91% from last Friday. The index is up +60.26% from the March 23, 2020 bear market low and down -25.25% from the January 3rd all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.