Fed's favored inflation gauge shows cooling price pressures, clearing way for more rate cuts

WASHINGTON (AP) — The Federal Reserve's preferred inflation measure on Friday provided the latest sign that price pressures are easing, a trend that is expected to fuel further Fed interest rate cuts this year and next.

Prices rose just 0.1% from July to August, the Commerce Department said, down from the previous month’s 0.2% increase. Compared with a year earlier, inflation fell to 2.2%, down from 2.5% in July and barely above the Fed's 2% inflation target.

The cooling of inflation might be eroding former President Donald Trump's polling advantage on the economy. In a survey last week by The Associated Press-NORC Center for Public Affairs Research, respondents were nearly equally split on whether Trump or Vice President Kamala Harris would do a better job on the economy. That is a significant shift from when President Joe Biden was still in the race, when about six in 10 Americans disapproved of his handling of the economy. The shift suggests that Harris could be shedding some of Biden's baggage on the economy as sentiment among consumers begins to brighten.

Excluding volatile food and energy costs, so-called core prices rose just 0.1% from July to August, also down from the previous month’s 0.2% increase. Compared with 12 months earlier, core prices rose 2.7% in August, slightly higher than in July.

With inflation having tumbled from its 2022 peak to barely above the Fed's 2% target, the central bank last week cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates. The policymakers also signaled that they expect to reduce their key rate by an additional half-point in November and in December. And they envision four more rate cuts in 2025 and two in 2026.

Friday's report also showed that Americans' incomes and spending ticked up only slightly last month, with both rising just 0.2%. Still, those tepid increases coincide with upward revisions this week for income and spending figures from last year. Those revisions showed that consumers were in better financial shape, on average, than had been previously reported.

Americans also saved more of their incomes in recent months, according to the revisions, leaving the savings rate at 4.8% in September, after previous figures had shown it falling below 3%.

The government reported Thursday that the economy expanded at a healthy 3% annual pace in the April-June quarter. And it said economic growth was higher than it had previously estimated for most of the 2018-through-2023 period.

The Fed tends to favor the inflation gauge that the government issued Friday — the personal consumption expenditures price index — over the better-known consumer price index. The PCE index tries to account for changes in how people shop when inflation jumps. It can capture, for example, when consumers switch from pricier national brands to cheaper store brands.

In general, the PCE index tends to show a lower inflation rate than CPI. In part, that’s because rents, which have been high, carry double the weight in the CPI that they do in the index released Friday.

Recent reports suggest that the economy is still expanding at a healthy pace. On Thursday, the government confirmed its previous estimate that the U.S. economy grew at a healthy 3% annual pace from April through June, boosted by strong consumer spending and business investment.

Several individual barometers of the economy have been reassuring as well. Last week, the number of Americans applying for unemployment benefits fell to its lowest level in four months.

And last month, Americans increased their spending at retailers, suggesting that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and high borrowing rates.

The nation’s industrial production rebounded, too. The pace of single-family-home construction rose sharply from the pace a year earlier. And this month, consumer sentiment rose for a third straight month, according to preliminary figures from the University of Michigan. The brighter outlook was driven by “more favorable prices as perceived by consumers” for cars, appliances, furniture and other long-lasting goods.

A shopper examines large-screen televisions on display in a Costco warehouse Thursday, Sept. 19, 2024, in Lone Tree, Colo. (AP Photo/David Zalubowski)

FORT LAUDERDALE, Fla. (AP) — Massive Hurricane Helene crashed into Florida's sparsely populated Big Bend region, bringing storm surge and high winds across the state's Gulf Coast communities before ripping into southern Georgia.

Hurricane Helene has weakened to a tropical storm over Georgia with maximum sustained winds of 70 mph (110 kph) early Friday, the National Hurricane Center said.

The storm will continue to weaken as it continues to move north across Georgia. At 8 a.m., Helene was centered about 35 miles (60 kilometers) south-southwest of Clemson, South Carolina, and about 80 miles (130 kilometers) east-northeast of Atlanta, moving north at 30 mph (48 kph), the hurricane center in Miami reported.

Helene wobbled as it approached Florida's coast late Thursday before making landfall near the mouth of the Aucilla River with maximum sustained winds estimated at 140 mph (225 kph). That location was only about 20 miles (32 kilometers) northwest of where Hurricane Idalia came ashore last year at nearly the same ferocity and caused widespread damage.

Evacuations were underway Friday morning in areas of Western North Carolina. The Haywood County Sheriff’s Office west of Asheville said it was helping with evacuations in in Cruso, Clyde, Canton and lower-lying parts of Waynesville.

As of 9:15 a.m. Friday, some 3.2 million people across Florida, Georgia, South Carolina, North Carolina and Tennessee were without power, according to poweroutage.us.

Most of the outages, were in Florida, Georgia and South Carolina — each with more than 1 million outages.

Almost 45% of homes and businesses in South Carolina were without power Friday morning. Whole counties were without electricity as winds gusted to near hurricane force. Trees or other debris blocked every major road leading into Greenwood, a city of about 22,000 people about 65 miles (105 kilometers) west of Columbia, Greenwood County officials said on social media.

Crews of linemen were stationed across the region, ready to begin the process of restoring power as soon as the winds from Helene died down.

Flooding along Florida's coast began well before Hurricane Helene made landfall, with rapidly rising waters reported from as far south as Fort Myers on the state's Gulf Coast.

Early Friday, sheriff's officials in Hillsborough County, where Tampa is located, were using a large ATV to rescue people who were stranded by rising waters.

In Cedar Key, an old Florida-style island off the Gulf Coast, many homes, motels and businesses were flooded. Not even the city's fire rescue building was spared.

"It actually blew out the storm panels on the front doors. Blew out one of the breakaway walls on the back and two entry doors,” the agency posted online. “It appears that we had about 6 feet or better of water inside.”

Storm surge is the level at which sea water rises above its normal level.

Much like the way a storm’s sustained winds do not include the potential for even stronger gusts, storm surge doesn’t include the wave height above the mean water level.

Surge is also the amount above what the normal tide is at a time, so a 15-foot storm surge at high tide can be far more devastating than the same surge at low tide.

The most common way to measure a hurricane’s strength is the Saffir-Simpson Scale that assigns a category from 1 to 5 based on a storm’s sustained wind speed at its center, with 5 being the strongest.

A man lights charcoal to cook dinner in his flooded home after the passage of Hurricane Helene in Guanimar, Artemisa province, Cuba, Sept. 25, 2024. (AP Photo/Ramon Espinosa)

Charles Starling, a lineman with Team Fishel, is pelted with rain as he walks by a row of electrical line trucks stage in a field in The Villages, Fla., Thursday, Sept. 26, 2024, in preparation for damage from Hurricane Helene. (Stephen M. Dowell/Orlando Sentinel via AP)

This GOES-16 GeoColor satellite image taken at 5:46 p.m. EDT and provided by National Oceanic and Atmospheric Administration (NOAA) shows Hurricane Helene in the Gulf of Mexico moving towards Florida, Thursday, Sept. 26 2024. (NOAA via AP)