Medical Costs Surge, But CPI Remains Tame in August

September 18, 2001 (PLANSPONSOR.com) Consumer prices rose by just 0.1% in August, but medical costs continued to surge, according to the Labor Department.

The cost of medical care rose 0.5% during the month. Prescription drug prices were up 0.4%, doctors’ service costs were 0.7% higher and the cost of hospital services soared 1% – the largest increase since the beginning of the year.

The higher medical costs were offset by lower prices for gasoline, tobacco and airline fares, according to the government. The “core” consumer price index (CPI) rose for the second month in a row, rising 0.2%. Both that reading and the 0.1% increase in the CPI were in line with expectations.

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Year-to-date, consumer prices rose at a seasonally adjusted annual rate of 2.5%, compared with an increase of 3.4% for all of 2000. The core rate of inflation so far this year has increased at a rate of 2.9%. Last year the core inflation rate was up 2.6%.

 

Fed Funds Rate Cut by 0.5% ahead of Market Reopening

September 17, 2001 (PLANSPONSOR.com) - The Federal Open Market Committee cut the key federal funds rate by 0.5% to 3%.

The announcement came an hour before US equity markets were to reopen for following Tuesday’s attack on New York’s financial district and the Pentagon.

The surprise cut, which occurred ahead of the Fed’s regularly scheduled interest rate meeting, set for October 12, is the eighth cut this year.

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In the same announcement, the Fed stated that it “will continue to supply unusually large volumes of liquidity to the financial markets, as needed, until more normal market functioning is restored. As a consequence, the FOMC recognizes that the actual federal funds rate may be below its target on occasion in these unusual circumstances.”

In an immediate reaction to the rate cut, commercial banks started cutting their prime rates.


 

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