The latest data supports the notion that inflation is moving closer to the Federal Reserve's 2% target, with August’s personal consumption expenditure (PCE) coming in at 2.2%, below the expected 2.3%. Tiffany Wilding, PIMCO managing director and economist, joins Madison Mills and Seana Smith on Morning Brief to break down what the data signals about the US economy and what’s next.

“Overall, today's data was sort of broadly in line with expectations… We've come on a string of pretty good inflation readings over the last several months and that was coming after an acceleration in inflation in the first quarter. So I think Fed officials are pretty feeling pretty good about where inflation is sitting,” Wilding tells Yahoo Finance.

Amid some concerns about labor market softening, Wilding says, “The labor markets are just not as big of a source of inflationary pressures as they were before.” She explains "what we have is just an economy that's cooling,” with companies not needing to hire at the same pace they needed to in recent years. “We're kind of getting more back to normal is how we would describe it.”

She says, “There was a series of shocks post-pandemic that really kind of knocked the economy in various ways, and we're just normalizing from that, and it will take some time in addition. But the thing that isn't normalized is monetary policy,” which is why the Fed is cutting rates.

The economist says the next indicator of the Fed’s move at the November meeting will be next week’s jobs report as “there's a potential for it to come in weaker as well.” She notes that uncertainty around the upcoming election could explain some of the mixed signals coming from the labor market. “It's a very close race. And when we look back historically around elections and, particularly, elections that are very close in terms of pre-election polling, you actually tend to see companies that slow their hiring and slow their investment.”

Wilding says historically companies tend to slow hiring in the six months ahead of an election which is “one of the reasons why you've seen a step down in the labor market data, and it suggests to us that we're going to continue to see some weak prints here until we get more clarity after the election. I certainly think the Fed could react to that.”

Looking forward to the election, Wilding says that while the two candidates economic approaches vary, “what is very bipartisan is this understanding that the U.S. needs to focus on so-called industrial policies... Both sides sort of differ in how they want to implement that industrial policy. But I think everybody agrees that that's important for... the longer-term competitiveness of the US economy.”

She says the US economy “has come out of the pandemic with investment trends that have been stronger than our developed market peers and productivity growth… There's some good news there about the trajectory of the U.S. economy.”

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This post was written by Naomi Buchanan.