The Week Ahead: The ‘quiet week’ will be noisy

For a little more than a week before each of its interest rate setting meetings, the Federal Reserve falls silent. The central bank calls it a blackout period. It’s a time when its leaders stop shedding light on their views of the American economy and go mute on the range of decisions they may make when they meet.

Not that there hasn’t been plenty of “open mouth” policy being practiced leading up to the week ahead. At least four regional Fed presidents in the past week signaled that aggressive rate hikes are necessary to fight inflation, an indication of support to continue raising borrowing rates quickly in their effort to squeeze rising prices.

The investment markets are banking on another three-quarters of a percentage point rate hike — the Fed’s fourth in a row — when it meets in early November. The last piece of economic evidence the central bankers will get before confirming the market’s expectation will be the Personal Consumption Expenditures. The September data is released on Friday in the week ahead.

The PCE is the Fed’s favored inflation barometer. It’s a bit more dynamic than the better-known Consumer Price Index. The CPI gets headlines but is a measurement of a more static basket of goods and services.

The differences between the two are for economic textbooks, not consumers. The PCE is faster to pick up on changes in what people are buying. So if shoppers switch from name-brand crackers to store-brand to save some money, the PCE should detect that better than the CPI.

Recent data has indicated an ever so slight cooling from the 41-year high hit in June – not that anyone has experienced much of it except maybe at the gas pump. People know that prices are up and staying up. They see it in the dairy aisle, the shoe store and holiday travel plans. But is the speed of increases meaningfully slowing?

The Federal Reserve hopes so, yet it isn’t about to ease off its effort to combat inflation by continuing its aggressive interest rate hikes next month. The bankers have been very noisy about that.

Tom Hudson is a financial journalist and chief content officer at WAMU public radio in Washington, D.C. Follow him on Twitter @HudsonsView.