Key Highlights

● Warsh said it is the Fed's responsibility to get Inflation down.

● September PCE inflation ran hot, with energy and gasoline prices jumping sharply.

● WTI settled at $102.00 and Brent at $114.88 on Thursday.

● Third-quarter GDP beat forecasts and Business Investment soared.

Federal Reserve Chair Kevin Warsh put inflation squarely at the top of the central bank's agenda on Wednesday, and Thursday's hot price data showed just how stubborn the problem has become.

A clear mission statement

At his press conference on Wednesday, October 28, Fed Chair Kevin Warsh did not mince words. "It's our responsibility to get inflation down," he said, according to media reports. The remark came shortly after the Federal Reserve held interest rates steady following a hike in September, in a 10 to 2 vote in which Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of another increase.

Warsh also said Americans are "still dealing with inflation that has been running above the committee's objective." The message: the Fed sees the Job as unfinished.

The inflation picture

Thursday's data underlined his point. The September personal consumption expenditures price index, the Fed's preferred inflation gauge, ran hot, with the year-over-year headline rate accelerating from August. Core PCE, which strips out food and energy, also edged higher. One source said the readings matched estimates, while another said the headline figure came in slightly below consensus.

Energy was a major culprit. Energy prices and gasoline both jumped sharply in September, which one report tied to a war-related oil squeeze. Oil remains elevated: on Thursday, WTI settled at $102.00 and Brent at $114.88, according to market data, amid tensions involving Iran, Houthi strikes on Saudi energy facilities and a claim by Iran's Revolutionary Guard that three tankers hit sea mines south of the Strait of Hormuz.

A strong economy adds pressure

Inflation is harder to tame when the economy is running hot, and that is exactly what the data showed. The advance estimate of third-quarter GDP beat forecasts and accelerated from the second quarter, with business investment soaring. The Fed's own statement upgraded its description of activity to "expanding at a strong pace" from "solid," and Warsh described labor market conditions as "quite positive."

Consumer spending also held firm despite oil above $100 a barrel, and Earnings season has been robust, with the large majority of the 253 S&P 500 companies that had reported beating expectations, according to market data. Strong Demand of that kind can make it easier for companies to pass on higher costs, which is precisely the dynamic central bankers worry about.

The December question

Warsh's words and the data together kept a December rate hike firmly in play. One Wealth advisor said, "Today's data strengthens the case for another rate increase in December." Fed funds futures data pointed to traders favoring a hike, although one report said expectations leaned toward a pause.

The policy statement left room for either path, saying "accumulating more information will help the Committee determine the appropriate stance of policy."

How markets reacted

Gold and silver both fell on Thursday, with market data attributing the slide to strong growth and hot inflation data supporting Fed tightening bets. The same data said the dollar was "supported by expectations of restrictive Fed policy." Treasury yields, however, eased back from their multi-decade highs, while stocks were mixed, with the S&P 500 slipping 23.59 points to 7,720.39 on Alphabet (NASDAQ:GOOGL)'s plunge and the Russell 2000 rallying.

What to watch

The next big inflation-related release is Friday's third-quarter Employment Cost index at 8:30 a.m. ET, a measure of wage and benefit costs that can feed into prices. After that, the November 3 midterms and the trajectory of oil prices will shape the backdrop ahead of the Fed's December 8 to 9 meeting, where Warsh's commitment to getting inflation down will face its next test.