The Federal Reserve would like to see inflation at its target rate of 2% or so before raising interest rates but the central bank certainly doesn’t want to hold off on a rate increase for so long that inflation runs out of control. For August the core PCE, the key measure since it excludes volatile food and energy prices, was up 0.2%. That brings the year over year change in core PCE to 1.7%. That’s a slight increase from the 1.6% annual rate seen in July.
The newest estimate for second quarter GDP released this morning shows the U.S. economy growing at a 1.4% annualized rate instead of the 1.1% of the prior estimate. Economists were looking for growth of 1.3% for this revision and see 2.8% growth in third quarter
Oil rallied big time today on news that OPEC countries have agreed to reimpose a production ceiling and to drop production to 32.5 to 33 million barrels a day. At the low end of the range that would amount to a decrease in production of 750,000 barrels a day from what OPEC says it pumped in August. West Texas Intermediate is up 4.48% to $46.67 a barrel today and the Brent benchmark is up 5.11% to $48.32 a barrel. But this is a typical OPEC “agreement.”
Ahead of tomorrow’s OPEC “consultations” in Algiers, Saudi Arabia put an offer on the table today to reduce oil production to January levels and Iran rejected it. Iran wants to increase its current production of 3.6 million barrels a day to 4 million barrels, the level before international sanctions devastated the country’s oil exports. The Saudi offer would have reduced Saudi Arabia’s production by 500,000 barrels a day, but only if other OPEC members agreed to freeze production at current levels.
The worst news for U.S. big banks today has come in a talk by Federal Reserve governor Dan Tarullo on changes to the Fed’s stress test rules for banks. The modifications will are designed to lift some of the regulatory burden from smaller regional banks who will be exempted from some of the qualitative parts of the stress test, but they will increase capital requirements for the eight “globally significant” institutions