Updated Published Friday, September 29, 2023 at: 7:07 PM EDT

Excluding energy and food prices, inflation rose by a scant one-tenth of 1% in August, as measured by the Federal Reserve Board’s preferred inflation benchmark. However, because gasoline prices rose sharply in August, the PCED index of inflation -- including energy and food expenses -- rose in August by four-tenths of 1%. 

Released Friday morning by the Bureau of Economic Analysis, the monthly PCED report shows the 12 rate hikes implemented by the Fed since March 2021 have snuffed out the high-inflation mindset that peaked 18 months ago. 

The red line in the chart above shows the PCED index of inflation hugged the 1.5% annualized inflation rate, shown in the lower dotted gray line, for a decade, but began soaring two months after the pandemic struck the U.S. in February 2020 and accelerated for about 18 months. Since last summer, after shooting through the 2% long-term annualized rate, the PCED index has moderated and is nearing the Fed’s target rate for inflation. 

With PCED inflation at about 2% in the three months through August, it is uncertain if another rate hike will be announced on November 1, after the Fed interest rate policymakers’ next meeting. 

The third quarter ended Friday when the Standard & Poor’s 500 stock index closed Friday at 4288.05, a loss of about 2.4%.

That was down -0.27% from Thursday and -0.74% lower than a week ago. The index is up +91.65% from the March 23, 2020, bear market low and down -10.60% from its January 3, 2022, all-time high.

Amid stock market uncertainty, remember that the S&P 500 index rose 8.7% in the second quarter of 2023 and 7% in the first quarter of 2023 – much stronger quarterly gains than 2.5% averaged annually on large-company stocks since 1926. Moreover, economic growth is strong: 

The Atlanta Fed’s GDPNow algorithmic-driven forecast model projects third quarter economic growth is rising at a 4.9% annualized rate, much higher than what was “normal” before the pandemic. 

• The New York Fed’s GDPNow algorithm projects a less-robust but still-strong growth rate for 3Q of 2.1%.

With inflation under control and no recession on the horizon, the post pandemic era of anomalies is beginning to end but uncertainty is palpable. It’s a goldilocks situation for long-term investors. 

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