The Fed Has Just hit its 2% Inflation Target

The Federal Reserve is nearing its objective of a 2% inflation rate, according to Goldman Sachs economists. This is immediately after the dramatic interest rate cut just a couple of weeks ago. Consumer and producer price indexes for Sept both came within expectations, showing that inflation is dwindling to around 2%, the Fed's target. In fact, Goldman Sachs's economics believe that they may already be there.

The Wall Street investment bank on Friday projected that the Commerce Department's personal consumption expenditures price index for Sept will show a rate of 2.04% inflation rate over 12 months when released.

If Goldman is indeed correct, the number is right in line with the Fed's long-held objective, a little over 2 years after inflation spiked to a 40-year high and engaged an aggressive round of interest rate increase. The Fed will prefer the PCE as its inflation gauge, although it does opt to use multiple sources.

“The overall trend over 12, 18 months is clearly that inflation has come down a lot, and the job market has cooled to a level which is around where we think full employment is,” Chicago Fed President Austan Goolsbee said in a CNBC interview Thursday after the latest consumer price data was released. “We’d like to get both of them to stay in the space where they are right now.”

While keeping inflation away may not be a light task, latest data does indicate that though prices are not receding, the rate that they're increasing is slowly falling. The 12 month rate for all items consumer price index was at a 2.4% in September while the producer price index showed a yearly rate of 1.8%. Goldman's projection that the PCE index heads to about 2% also falls in line with the Cleveland Fed's Tracking.

However, all this considered, inflation for the third quarter is running at a measly 1.4% - well below target. Core inflation, excluding food and energy, is a metric that the Fed prefers for long term trends. It is expected to run at a 2.6% annual rate, much lower that the CPI, at 3.3%.

Futures Traders bet on a near certainty that Fed will cut rates a quarter point at both November and December meetings.