Core PCE Inflation Stable at 3.0%

The 3, 6, and 12 month annualized percentage changes show similar core PCE inflation: they are pegged at 3.0%, 3.0%, and 2.9% respectively. Inflation is stable, albeit at a higher level than the Fed’s long run 2.0% target.
Economic historian and macroeconomist Brad DeLong has long argued that the 2.0% inflation target is too low. I tend to agree: we’ve come uncomfortably close to deflation three times over the past 30 years, which is three times too many. By my reckoning, we are at an inflation sweet spot and should tighten if inflation creeps upwards and loosen if it trends too far downwards. But the Fed’s official goals differ and they are properly concerned about their credibility with price setters. Even if the 2.0% target isn’t the best we could do, it’s the one that the economy has shaped itself around.
The market believes that the Fed will lower the Fed Funds target rate by a quarter percentage point after the September 16-17 meeting and that this week’s job report will be an important input into their reasoning. I interpret last Friday’s PCE inflation report as being relatively tame.