The Fed’s Preferred Inflation Gauge Cooled Overall in September

Overall inflation slowed in September from a year earlier, though some signs of stubbornness lingered under the surface.

Inflation has been cooling for two years, and fresh data released on Thursday showed that trend continued in September: Prices climbed just 2.1 percent compared with a year earlier.

That is nearly back to the Federal Reserve’s 2 percent inflation goal — good news for both the Fed and the White House — though the report also shows evidence that price increases remain stickier under the surface.

A closely watched inflation measure that strips out volatile food and fuel costs to give a sense of the underlying trend in prices was up 2.7 percent in September compared with a year earlier. That “core” index was unchanged from the previous reading, and on a monthly basis, core inflation actually accelerated slightly.

The figures were largely in line with what economists had expected. The core numbers reinforce that while the Fed has made serious progress in bringing inflation back under control, it’s not entirely finished.

“There’s still more work to be done,” Omair Sharif, founder of the firm Inflation Insights, said ahead of the report. He added that inflation could look stubborn in coming months, which could give the Federal Reserve pause as it contemplates future rate cuts.

The Fed lifted interest rates sharply in 2022 and early 2023 to try to slow the economy and wrestle inflation under control. But officials slashed them by half a percentage point in September, cutting interest rates for the first time in four years.

Given how much inflation has been slowing, central bankers decided that they no longer needed to hit the brakes on the economy so aggressively. In fact, doing so risked slowing it down too much, potentially even causing an economic crash.

Now, policymakers are widely expected to lower rates by a quarter point at their meeting next week. But Mr. Sharif said that sticky inflation in the coming months could put a follow-up rate cut at the Fed’s December meeting in question.

Even if price increases are not yet completely vanquished, the progress in lowering them is undeniable. Overall inflation peaked above 7 percent in 2022. The Consumer Price Index, a related inflation measure that comes out earlier each month, touched 9.1 percent that year.

That’s good news for the Biden administration — and in particular for Vice President Kamala Harris — as November’s election enters its final days. As price increases cool, people seem to be slowly feeling better about the economy. Consumer confidence has been improving, though it has yet to fully recover to the levels that prevailed before the pandemic.

Cooler inflation could translate to more optimism at the voting booth for Democrats and their management of the economy.

So could continued wage gains. The job market has been slowing over the past year, though wage growth has remained fairly strong.

Fresh Employment Cost Index data released on Thursday showed that compensation climbed 0.8 percent in the third quarter, just slightly slower than what economists had expected. Over the past year, compensation for civilian workers climbed by 3.9 percent — a moderation, but still a solid pace of growth.