US Inflation Has Stayed Above Fed's 2% Target for 66 Straight Months, Per Bespoke
A five-and-a-half-year miss on the Fed's target
US inflation has now been above the Federal Reserve's 2% target for 66 straight months.
That makes this only the third such stretch of more than five years in a century, per Bespoke Investment Group.
The Bespoke framing is attributed to Bespoke Investment Group. The underlying streak itself is also visible in the Fed's preferred gauge: the personal consumption expenditures price index has been above 2% for 66 months in a row, with the last reading below 2% in February 2021, per analysis of PCE data by the Mises Institute.
The latest readings are still well above target
The August PCE price index rose 3.4% year over year, and core PCE, excluding food and energy, rose 3.0%, per the Mises Institute analysis of the release.
Consumer prices told a similar story a month later. The Consumer Price Index rose 3.7% year over year in September, per the Labor Department data reported by Reuters, keeping CPI above 2% for about 65 consecutive months at that point.
Core CPI was up 2.6% year over year in September, more than the 2.5% economists polled by Reuters had projected, per Reuters.
PCE inflation had peaked at 7.2% in June 2022, fell to 2.3% in September 2024, and has since drifted back up to 3.4% in August 2026, per analysis of the PCE series.
Officials are worried expectations are becoming entrenched
The concern inside the Fed is no longer just the level, but how long it has lasted.
Cleveland Fed President Beth Hammack said what is worrisome is that consumers have started to regard high inflation as a fact of life, per reporting on the September CPI release.
The CPI index has increased by 28% since January 2020, per the Mises Institute, a cumulative loss of purchasing power that households feel even when the monthly pace slows.
The Fed raised its policy rate in September to a target range of 3.75% to 4.00% to bring down too-high inflation, per Reuters, and officials said they are looking closely for signs of broadening price pressures.
Markets are pricing a longer fight
A Reuters poll found 94 of 100 economists expect no hike at the October meeting, while all 100 anticipate a 25-basis-point increase in December, per reporting on the poll.
Forecasters in that poll see PCE staying more than 100 basis points above the 2% target over coming quarters and not returning to target until at least 2028, per the same reporting.
That would extend the streak well beyond 66 months, and keep real rates and long-end yields under pressure from inflation risk rather than growth alone.
Software prices were up 28% year over year in September, the largest increase ever in that category in the data reported by Reuters, one sign the September surprise was broad-based rather than concentrated in a single item.
How this could hit the options market
A target missed for 66 straight months changes how markets price the target itself. If traders treat 2% as aspirational rather than binding, long-duration assets stay sensitive to every hot CPI and PCE print.
Stocks and funds to watch include SPY, QQQ, TLT, and GLD.
Rate-sensitive banks and financials are also in focus, including XLF, while inflation-hedged exposure such as TIP tends to see flow around inflation releases.
Watch options flow and implied volatility into the next FOMC meeting and the next PCE release. Another above-target print would reinforce the higher-for-longer pricing already building in futures markets.