The overall and core CPI both rose just 0.1 percent in September. Over the last year, the increases in the two indexes have been 2.3 and 2.2 percent, respectively. The core index excluding shelter has risen just 1.4 percent over the last year.

Rather than accelerating, it appears that inflation is actually slowing slightly. The annualized rate of inflation in the core index comparing the last three months (July, August, September) with the prior three (April, May, June) is just 2.0 percent.

This pattern might be a good reason for the Fed to hold off on further rate hikes. If it is actually targeting 2.0 percent as an average inflation rate (in the PCE deflator, which is about 0.2 percentage points lower, on average), then it should want the inflation rate to rise somewhat above 2.0 percent when we are approaching the peak in the cycle.

While growth was strong in the second quarter and is likely to be strong again in the third quarter, recent weakness in housing and car sales indicate the economy may slow substantially in the fourth quarter. There seems little downside risk if the Fed were to delay further rate hikes since inflation remains well under control. The potential benefits in terms of employment and growth are substantial.