a Inflation indicators closely monitored November is particularly good news for the Federal Reserve as the economy cools and officials move to the next stage in the fight against rapidly rising prices, with voters looking for relief from rising costs. This was also a plus for the White House.
The measure of consumer spending inflation that the Fed cites when it says it aims for average inflation of 2% over the long run rose 2.6% in the year to November. This was down from 2.9% last month and was lower than economists expected. Compared to the previous month, overall prices fell slightly for the first time in several years.
The 0.1 percentage point decline was the first negative decline since April 2020. as gasoline price fell. Inflation rose modestly on a monthly basis and rose 3.2% for the year, after excluding volatile food and fuel prices to give a clearer picture of underlying price pressures. This is down from 3.4% previously.
Although this is still faster than the Fed’s goal, the report provided the latest evidence that price increases are rapidly slowing toward the Fed’s goal. More than two years of rapid inflation have weighed on American shoppers and bewildered policymakers, but months of solid progress have convinced policymakers they may be turning a corner. It is useful for
A growing number of officials and economists believe that a soft economic landing, a stage in which inflation gradually returns to normal without a painful recession, may be on the horizon. Fed policymakers left interest rates unchanged at this month’s meeting, suggesting they were well on their way to raising rates and could cut borrowing costs three times next year.
“Inflation is slowing much faster than the Fed expected, so the Fed could cut rates more aggressively soon,” said Gennady Goldberg, head of U.S. rates strategy at TD Securities. ” he said. “They’re doing everything they can to get a soft landing here.”
The rise in inflation is welcome news for the Biden administration, which has struggled to take advantage of strong economic growth and low unemployment as high prices undermine household confidence.
president biden issued a statement Celebrating the report, National Economic Council Chairman Lael Brainard said on a call with reporters that slowing inflation was an “important milestone.”
“Inflation is falling faster than more optimistic forecasts,” he said, noting that wage increases are outpacing price increases. He did not comment directly on monetary policy, citing the central bank’s independence from the White House, but investors have come to expect more generosity from the Fed and households are already seeing lower mortgage rates. pointed out that they are facing a decline in
Based on market prices, the Fed is expected to begin lower interest rates As early as March, authorities Discussed It is too early to talk about when interest rate cuts will begin.
“Inflation is easing from its highs and we don’t have a significant increase in unemployment, which is very good news,” Federal Reserve Chairman Jerome H. Powell said at the meeting. Still, he emphasized that “the path forward is uncertain.”
Central bankers are likely to keep an eye on signs that inflation will continue to slow as they consider when to start cutting interest rates. Some officials have suggested that holding borrowing costs constant at a time when price increases are slowing would effectively strain the economy further. (Interest rates are not price adjusted, so if inflation falls, they will rise after deducting inflation.)
Still, Fed officials warned that repeated head fakes showed price increases were proving more stubborn than expected, and that geopolitical issues could complicate supply chains and raise gas prices at a time. has hesitated to declare victory.
Inflation Insights founder Omail Sharif said in a note following Friday’s data: “While we are certainly pleased to see better inflation statistics, we do expect some disruption going forward.” Stated. “Fed officials will want to get through this before they shift their focus in earnest to lowering rates.”
Policymakers will also be keeping a close eye on consumer spending to gauge how much momentum remains in the economy.
of report published Friday showed that consumers are still spending modestly. Personal spending rose 0.2% from October, or 0.3% after adjusting for inflation. Both measurements were faster than last month. This suggests that growth is still positive, although not as strong as earlier this year.
Officials still expect the economy to slow further and more markedly in 2024, believing that weaker demand will pave the way for a sustained slowdown in price growth.
Economists are expressing humility after a year in which inflation cooled rapidly despite surprisingly strong growth. But policymakers remain wary of growth being too strong.
“If you have strong growth, that means you’re probably going to keep the labor market very strong. It’s probably going to put some upward pressure on inflation,” Powell said in his speech. Press conference. “That could mean it will take longer for inflation to reach 2%.”
That “could mean interest rates need to remain high for a longer period of time,” he said.