by TO closely watched inflation measure cooled noticeably in November, good news for the Federal Reserve as officials move into the next phase in their fight against rapid price increases and positive news for the White House as voters see an easing of the surge. of costs.
The personal consumption expenditures inflation measure, which the Federal Reserve cites when it says it targets average inflation of 2 percent over time, rose 2.6 percent in the year through November. This was down from 2.9 percent the previous month and was less than economists had forecast. Compared to the previous month, prices overall even fell slightly for the first time in years.
That drop, a 0.1 percent drop and the first negative reading since April 2020, came like gas prices abandonment. After volatile food and fuel prices were excluded to get a clearer view of underlying price pressures, inflation rose modestly month-on-month and was 3.2 percent over the year. That was down from 3.4 percent previously.
While this is still faster than the Federal Reserve’s target, the report provided the latest evidence that price increases are slowing rapidly toward the central bank’s target. After more than two years of rapid inflation that has burdened American shoppers and tormented policymakers, several months of solid gains have helped convince policymakers that they may be turning a corner.
Increasingly, officials and economists think they may be within sight of a soft economic landing, one in which inflation moderates and returns to normal without a painful recession. Fed policymakers held interest rates steady at their meeting this month, signaled they may well be done raising interest rates and suggested they might even cut borrowing costs three times next year.
“Inflation is slowing much faster than the Fed had anticipated, which could potentially allow them to cut sooner and more aggressively,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. “They’re really doing everything they can to make it a soft landing here.”
The inflation progress is good news for the Biden administration, which has struggled to capitalize on strong economic growth and low unemployment at a time when high prices are eroding household confidence.
president biden issued a statement celebrating the report, and Lael Brainard, director of the National Economic Council, called the slowdown in inflation “an important milestone” in a call with reporters.
“Inflation has fallen faster than even the most optimistic forecasts,” he said, noting that wage increases are outpacing price increases. While he did not comment directly on monetary policy, citing the central bank’s independence from the White House, he did note that households already face lower mortgage rates as investors look forward to a more forgiving Federal Reserve.
Based on market prices, the Federal Reserve is expected to begin lowering interest rates as soon as March, although officials have discussed that it is too early to talk about when the rate cuts will begin.
“Inflation has come down from its peaks, and this has occurred without a significant increase in unemployment; that is very good news,” Jerome H. Powell, chairman of the Federal Reserve, said at that meeting. Still, he emphasized that “the path forward is uncertain.”
Central bankers are likely to watch closely for signs that inflation has continued to cool as they contemplate when to start cutting rates. Some officials have suggested that keeping borrowing costs stable when price increases are slowing would effectively squeeze the economy even further. (Interest rates are not price-adjusted, so they rise after removing inflation as inflation falls.)
Still, Fed officials have hesitated to declare victory after repeated lies in which price increases proved more persistent than expected, and at a time when geopolitical issues could complicate supply chains or drive up gas prices.
“The more benign inflation data is certainly something to celebrate, but there is some turbulence ahead,” Omair Sharif, founder of Inflation Insights, wrote in a note reacting to Friday’s data. “Federal Reserve officials will want to move forward before focusing directly on rate cuts.”
Policymakers are also likely to keep a close eye on consumer spending as they try to determine how much momentum the economy has left.
He published report Friday showed that consumers continue to spend at a moderate pace. A measure of personal consumption rose 0.2 percent from October and 0.3 percent after adjusting for inflation. Both readings were faster than the previous month. That suggests growth remains positive, although it is no longer as strong as it was earlier this year.
Officials still expect the economy to slow more noticeably in 2024, a cooling in demand that they believe would pave the way for slower, more sustainable price increases.
After a year in which inflation cooled rapidly despite surprisingly strong growth, economists are expressing humility. But authorities remain cautious about a situation in which growth remains too strong.
“If there is solid growth, what that will mean is that we will probably keep the labor market very strong; “will likely put some upward pressure on inflation,” Powell said in his Press conference. “That could mean it takes longer to get to 2 percent inflation.”
That, he said, “could mean we need to keep rates higher for longer.”
