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They are trying to prevent a larger blow to the labor market and engineer a softer landing. Still, the inflation data going into the October meeting will be ugly and hot due to the resurgence of energy prices. Elevated diesel prices could have a long tail, given the loss in global refining capacity

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That begs the question of who will replace the workers with foundational knowledge that are leveraging -AI in higher paid jobs. The Fed is expect to skip a rate hike in October and resume hikes in December.

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They are the lowest in fields exposed to AI - finance, insurance, professional business services and information. Recent research by @nberpubs reveals that new college grads are being affected by a hesitancy to hire due to uncertainty surrounding AI and its effects as well.

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Those who have means are kicking up their heels & traveling; those who don’t are feeling left out. That buoys service sector inflation along with aging demographics and curbs on immigration. Quit rates dropped in late August.

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Multiple job holders jumped to make ends meet, while the ranks of the long-term unemployed - more than 27 weeks - swelled to 1.94 million, the highest since May and well above pre-pandemic norms. Those out on paternal leave were elevated, while those out on vacation was highest September on record

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The blow is showing up as shortages of workers for in-home elder care and in nursing homes. Unemployment edged higher to 4.2% on better participation in the labor market. People are looking but not finding many job opportunities.

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Native-born workers require a higher wage to fill many of those positions to replace workers lost to a lapse in TPS. Healthcare is less able to bid up wages due to cuts to Medicaid, which will accelerate in October, with the start of the new fiscal year.

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The former is where AI is favoring workers with more experienced - the sector continued to shed jobs, mostly in steaming, broadcasting and publishing. The gains in leisure & hospitality were due to the need to bid up wages to replace workers lost to a lapse in TPS.

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That has left wages trailing the PCE measure of inflation for 12 consecutive months. The erosion in purchasing power coupled with a lack of job security is fueling consumer angst. The outliers on wages were in the information sector and in leisure and hospitality.

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Suspended animation Dismal jobs report with only 29,000 jobs created in the month and tepid wage gains. Losses in local government employment shaved 17K from the total Wage gains continued to cool. Benefit costs are cutting into wage gains, much to the dismay of workers.

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Much of the pain of higher rates showed up in a reduction in the surge in job openings above the supply of workers. Now, profit margins and jobs are on the line. That makes the Fed’s immaculate disinflation seem fanciful. The speed of front running rate hikes by bond market is consequential.

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It took too brutal recessions to break the back of that inflation. What will it take to break this inflation. Should be less but the gap between here and there is large and worrisome. The Fed almost achieved a soft landing in 2024 but the path was still hard.

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Core PCE is now above core CPI. One of the biggest reasons is healthcare costs, which are less cyclical than other costs. The last time we had a long and persistent divergence was 1983. Healthcare remained hot well into the 1990s until falling prices elsewhere lowered inflation.

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The increases go well beyond food & energy and that is where what we are enduring gets complicated and more difficult. The core measures of both CPI and PCE, which strip out food and energy have flipped.

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The inflation we are enduring represents one long collision of demand and supply shocks, which includes the service sector. The rise in healthcare costs is better captured by the PCE index of inflation than the CPI. It also better captures tradeoffs consumers make in their spending decisions.

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The Fed controls overnight short-term rate. The bond vigilantes control the longer-term interest rates, and they have grown nervous.

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removing what it gave us in rate cuts in late 2025. We now expect three rate hikes by early 2026. The probability that the vote will be unanimous just rose. That would provide a much needed boost to the Fed’s inflation-fighting credibility, something the bond market is craving.

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They hit a new record in recent days and show up in just about everything that is shipped. Limited refining capacity and damage to the capacity in Russia is adding the upward pressure to those prices and prompted them to decouple from oil prices. The Fed will begin hiking in September,

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Pressures continue to build in the pipeline in both goods and service sector prices. The ISM pricing component accelerated again this year. Manufacturing pressures are high; services were higher yet. Goods will get an extra lift from the recent surge in diesel prices.

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Those gains coupled with yesterday’s hot PPI reported suggest the PCE index, the Fed’s target, will rise 0.4% in August; the core will rise 0.3%. That will push the annual rise in those figures to 3.8 and 3.4%, respectively. That is too hot and still well above the Fed’s 2% target.

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That marks an acceleration from July. Gains were broad based. Notable double-digit gains in in-home health care. The care economy was hit hardest by the loss in immigrant workers, which hit another cliff in late July due to the loss in the Temporary Protected Status of Haitian workers.

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🔥CPI inflation jumped 0.4% and held at a 3.4% gain from a year ago. Core CPI, which exclude food & energy, rose a hotter than expected 0.3%. The gains were heavily in services, a problem for the Fed. The super core services rose a wicked hot 0.5% and were up 3% from a year ago.

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That is why I end each monthly piece I write these days with: Be kind; pay it forward. I know how much random acts of kindness can save a life and redeem a soul. I ❤️NY.

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He took my hand, covered in the soot of all that was lost that day, guided me to the corner and handed me off to strangers. Each one, extended a hand where the last left off. Each touch was a reminder of our collective humanity, a hope that still sustains me.

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The doorman who called my name as I reached Central Park late in the day. My name tag was still attached to my lapel. The music of children’s laughter playing in the park still dances in my ears. I was lost, trying to find my to a friend and journalist who offered to take me in.

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My colleague who took the names and numbers of survivors to let their loved ones know they were alive. The bus driver who let us on to help in our trek up the FDR. The restaurant owner that gave us water and a moment of rest amidst the chaos.

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I was but a visitor in NY that day. The burden of my choice of the location has never quite lifted. Lightening can strike twice. My task is to weather the storm, rebuild, move forward, one step at a time. Then memories I hold onto most were the acts kindness and humanity amidst the chaos.

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It is hard to explain how one event can mark one’s life. It is harder to grapple with how that same event hurt those you love most. Terrorism is not new but a constant; it has taken too many souls from this world and continues as a shadow, long after the dust seeps into every aspect of your being

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Mine arrived in the middle of the pandemic. I believe that we carry the spirits of those we love most in this world through our actions, which amplifies their memory and keeps their spirits alive. Their lives are like the ripple of a pebble after it hits the surface of a pond.

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Marriott World Trade Center. I still carry my key card with me everywhere I go as a talisman. He lost his brother, a fire fighter doing what he did best. I bear the scars of the toxins in the air and the cancers that took even more of us in the years that followed.

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9/11: The nightmares returned this year after a long period of calm. A friend and former colleague, John Howell, helped make the memorial below in Charlotte happen. The FF Steven Coakley Foundation put it together. We met years later and discovered he was across the street as I was in the...

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That is why I end each monthly piece I write these days with: Be kind; pay it forward. I know how much random acts of kindness can save a life and redeem a soul. I ❤️NY.

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Growth holds, but the center hollows out.

Took my inspiration from Irish poet Yeats this month. “The Second Coming” written in 1919. Promise a cute picture of a child eating a donut if you make it to the end. kpmg.com/us/en/articl...

kpmg.com

The donut economy

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Diane Swonk @dianeswonk.bsky.social · 10/09/2026

That is yet another reason that the Fed will need to raise rates. The bond market is already in disarray & would be much harder on the economy than if the Fed fails to act. The longer it waits, the more it may have to do in the future. Inflation 🔥, adds to inequality & destabilizing on its own.

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Diane Swonk @dianeswonk.bsky.social · 10/09/2026

the latter tends to get into other prices with a lag and can be extremely broad based. More importantly for the Fed, regardless of what the CPI shows tomorrow, the components that feed into services inflation in the PCE measure of inflation were hot and persistent.

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Diane Swonk @dianeswonk.bsky.social · 10/09/2026

The producer price index jumped 0.4% in August on higher energy prices, in-line with expectations. That is prior to the recent surge in oil and seems somewhat stale. What is more worrisome is where the price hikes were. They were heavily in diesel and heating fuel.

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Diane Swonk @dianeswonk.bsky.social · 09/09/2026

Houston, we have a problem…shocks are becoming the norm. Repetition builds muscle memory for inflation. We are more than five years into the current bout of inflation. It is hitting prices and demand with exception of data centers & the affluent. Corrosive & destabilizing.

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Diane Swonk @dianeswonk.bsky.social · 28/08/2026

He is a central banker and has a law degree.