Consumer confidence hit a one-year low, unexpectedly dropping in September as unemployment remains stubbornly high and the debate on whether to extend Bush-era tax cuts remains unsettled. 

The index fell to 66.6 this month down from a 68.9 reading in August, lower than economists' expectations, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment released Friday. 

The index is well below the average of 89 that held consistent in the five years before the recession began in December 2007.

Consumer spending accounts for about 70 percent of the economy, and Americans have shown a penchant lately for saving and paying off their consumer debt. 

Consumer prices rose slightly in August as inflation remained relatively flat, following three straight months of price drops that raised concerns about deflation.

Consumer prices were up 0.3 percent last month, the same as July, while core inflation, which excludes volatile energy and food prices, didn't increase, the Labor Department said Friday. 

Core inflation has crept up only 0.9 percent in the past 12 months, the lowest increase in 44 years, as a high jobless rate has held down demand, forcing businesses to keep prices lower. 

Rep. Bobby Bright (D-Ala.) has sent a letter to Speaker Nancy Pelosi (D-Calif.) and House Majority Leader Steny Hoyer (D-Md.) urging them to extend the Bush-era tax cuts for at least two years. 

Next week, the House is expected to take up the small-business bill passed Thursday by the Senate. 

House Majority Leader Steny Hoyer (D-Md.) said the first votes of the week won't take place until 6 p.m. Wednesday. 

Hoyer said Democrats are discussing the measure, which provides $12 billion in tax incentives and a $30 billion lending fund. 

Speaker Nancy Pelosi (D-Calif.) has said she expects the House to approve the Senate-passed measure and send the long-delayed bill to President Obama for his signature. 

Senate Finance Committee Chairman Max Baucus (D-Mont.) on Friday announced a hearing for next Thursday that will examine the lessons learned from the Tax Reform Act of 1986.

The announcement comes on the heels of Baucus telling reporters earlier this week that tax reform would be the subject of a hearing before the election.

President avoids confirmation fight in the Senate and appoints Harvard professor as White House adviser overseeing bureau's creation.

Pelosi leaves door open on upper-income tax cuts — The Speaker wouldn’t rule out an extension of all of the Bush-era cuts, including those for the wealthy.

What she said: “What I believe the American people deserve is a tax cut for the middle class, and without getting into procedure and timing and process, what we’re going to do is to say, at the end of the day, the extension of the Obama middle-income tax cuts will take place.”

Later, she reiterated her support for extending only the middle-class cuts, but she added a qualifier: “That’s my position, but again, we listen to our members.” http://bit.ly/cane42

More Pelosi... On CNBC, she took a tougher tone with Republicans on the economy.

“If we had not won re-election and intervened, we would be in a depression,” said Pelosi. 

She said the country is headed in the right direction: “It is now moving forward to fight for the middle class and then to create prosperity where many more people participate in the prosperity of our country … instead of a system where [we] nationalize the risk and send the bill to the taxpayer if all of it doesn’t work.” http://bit.ly/cHcGTG

Republicans in the other chamber appear to be hedging on the tax cuts, too: WaPo hed: “Senate GOP looks to compromise”... Finds Sens. Bob Corker  (Tenn.) and Susan Collins (Maine) pushing for a two-year extension of all the cuts. Sen. Lindsey Graham (S.C.) wants a three-year extension, and Sens. Judd Gregg (N.H.) and Orrin Hatch (Utah) both open to deals. http://bit.ly/bzFVsY

Paul Krugman says Democrats must take a “stand against GOP blackmail” on the Bush tax cuts. “Mr. McConnell, who was self-righteously denouncing the budget deficit just the other day, now wants to blow that deficit up with big tax cuts for the rich. But he doesn’t have the votes. So he’s trying to get what he wants by pointing a gun at the heads of middle-class families, threatening to force a jump in their taxes unless he gets paid off with hugely expensive tax breaks for the wealthy.” http://nyti.ms/cuTDgE

TaxVox’s Howard Gleckman says Sen. McConnell is guilty of “irresponsible pandering” on the budget. http://bit.ly/a4RbIv

Mixed bag of economic news — New jobless claims dropped more than expected. The Hill: http://bit.ly/bkVw2c

Lost decade for family income, according to Census. WSJ: “The inflation-adjusted income of the median household ... fell 4.8% between 2000 and 2009, even worse than the 1970s.” http://bit.ly/b16sA1

David Brooks says “the essential dynamic” of the election is that voters are upset about the economy, debt and Washington, and they want a change in government. “Right now, the Tea Party doesn’t matter. The Republicans don’t matter. The economy and the Democrats are handing the G.O.P. a great, unearned revival. Nothing, it seems, is more scary than one-party Democratic control.” http://nyti.ms/9PHWzC

Obama to name Warren to consumer bureau in Rose Garden — Announcement set for 1:30 p.m.; she’ll officially serve as “assistant to the president” and “special advisor to the secretary of the Treasury.” That’s a long-winded way of saying that she won’t be nominated bureau director and she won’t be leading bureau permanently.

CBS’s Chip Reid: “In that role Warren, over the next 12-18 months, will get the new Consumer Financial Protection Bureau up and running, a job that will include the consolidation of several consumer protection agencies now spread across the government. ... Sources say Warren recently made clear that she does not want the permanent job. Why not? Because Republicans — with fierce backing from the financial community — are dead-set against her getting the job. Her nomination would be expected to languish for months and during that time, White House officials say, she would have to cease operating in her interim position. ... The White House says Warren will play an integral role in deciding who that nominee will be. The president has a list of people he's considering for the permanent position. But Warren, the officials say, is no longer on the list.” http://bit.ly/dlfSrK

James Pethokoukis has five thoughts on Warren: (1) "I keep hearing how the WH is going to adopt a new tone with business. But picking Warren means that adjustment is more of a 2011 thing, I guess..." (2) "... this Plan B might provoke Senate Republicans into holding up Obama’s stalled Fed nominees..." (3) "Doesn’t this undermine Tim Geithner just a bit?..." (4) "... maybe the eventual [CFPB] pick will be someone more moderate..." (5) "Never hire someone you can’t fire." http://bit.ly/a7gmX5

Simon Johnson: Warren is the right appointment at the right time. http://bit.ly/bbAtSW

CHINA CURRENCY UPDATE — Geithner to take dispute to G20. Reuters: "Raising the stakes as part of a tougher line on China's policies, Geithner said the United States would use a Group of 20 summit in Seoul in November to try to mobilize trading partners to get Beijing to let the yuan strengthen faster." http://bit.ly/alHEnl 

Taxes could go up for millions of taxpayers in January if Congress doesn't extend a break included in the 2009 stimulus.

Fifty-one percent of Americans say President Obama bears little responsibility for the country's economic woes, according to a new Gallup poll. 

However, more Americans blame Obama for the state of the economy than did a year ago. In 2009, roughly 32 percent of respondents said he was at least moderately responsible for the economy, compared to 48 percent now. 

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