Just when a range of economic data got weak enough to give the Fed a pass on hiking rates, there was a surprise pickup in inflation last month.
The government's consumer price index rose 0.2 percent in August, but the closely followed core measure rose 0.3 percent, for an annualized pace of 2.3 percent. Meanwhile, the Fed's favorite inflation measure, the PCE deflator, is up 1.6 percent on an annualized basis but is still below the Fed 2 percent inflation target. The PCE deflator looks at the average price increase for all domestic personal goods and services.
JPMorgan economists said in a note that the rise in inflation does not change their view that the Fed will wait until December to raise rates, but they did point to a surprise 1 percent jump in medical costs — the biggest monthly rise since 1982.
"Inflation data is warmer than expected, and it will give fodder to those (Fed officials) who already coalesced around a rate hike. But we're going to see a hawkish hold," said Diane Swonk, CEO of DS Economics.
A batch of weakish data — including Thursday's 0.3 percent drop in August retail sales; the slowdown in August employment growth; and the decline in industrial production — all reinforced the majority view of economists that the Fed will stay on the sidelines at its meeting next week.