EXCLUSIVE: Another Warsh Rate Hike Is Hard to Justify After Core PCE Undershoots, Says Truflation's Oliver Rust
Another Federal Reserve rate hike is hard to justify, Truflation Head of Data Oliver Rust told Wednesday, arguing underlying inflation is cooling despite pressure from energy and tariffs. "We don’t understand how you can justify an increase of another Fed hike," Rust said. He said Truflation’s data has been showing underlying inflation cooling, a trend he believes is now also appearing in the official PCE figures. The Fed under Chair Kevin Warsh raised rates by 25 basis points to 3.75%-4.00% on Sept. 16, its first hike since 2023, as policymakers sought to prevent elevated price pressures from spreading more broadly through the economy. Rust said he is "not seeing this broadening yet." "I don’t understand how the Fed has increased rates according to their mandate," Rust said. He suggested market expectations may have played a role, noting traders had largely priced in a hike and that Warsh risked losing credibility if he surprised them by holding rates steady. Core PCE Undershoots Expectations Core PCE inflation came in at 3.0% in August, below the 3.3% economists expected. Headline PCE was also lower than forecast at 3.4%, versus 3.7% expected. But the softer-looking numbers partl
Another Federal Reserve rate hike is hard to justify, Truflation Head of Data Oliver Rust told Wednesday, arguing underlying inflation is cooling despite pressure from energy and tariffs. "We don’t understand how you can justify an increase of another Fed hike," Rust said. He said Truflation’s data has been showing underlying inflation cooling, a trend he believes is now also appearing in the official PCE figures. 00% on Sept.
16, its first hike since 2023, as policymakers sought to prevent elevated price pressures from spreading more broadly through the economy. " "I don’t understand how the Fed has increased rates according to their mandate," Rust said. He suggested market expectations may have played a role, noting traders had largely priced in a hike and that Warsh risked losing credibility if he surprised them by holding rates steady. 3% economists expected.
7% expected. But the softer-looking numbers partly reflected technical revisions to earlier data. 0%, meaning the annual core rate was actually unchanged in August. Rust said underlying inflation is cooling and argued that higher rates cannot solve the energy supply shock caused by the Iran conflict.
"I can jack up interest rates another 25 basis points but it’s still not going to solve my supply problem," he said. Polymarket traders now think there’s a 64% chance of the Fed holding rates steady in October, up from roughly 31% on Tuesday. Consumers Are Still Spending The strongest challenge to Rust’s view may be consumer demand. 1%.
Reuters analysis also found 51% of PCE components were still rising at annual rates above 3%, suggesting price pressures remain broader than normal. Rust said the spending surge is unlikely to last. "I think the print this month is going to be a bit of an anomaly," he said. " He said part of the increase reflected higher energy prices, which he put at about 3% month over month.
At the same time, spending rose more than four times as fast as income, while the savings rate fell to one of its lowest levels in years. Rust said the combination "doesn’t tie up for the long term," arguing consumers cannot keep spending at that pace while income growth remains weak and savings fall. He acknowledged that wealthier households, helped by a strong stock market, could continue spending. But he argued that group alone is unlikely to sustain the overall pace of consumer spending if energy costs fall and lower-income households pull back.
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