Is U.S. inflation improving or declining? Currently, the answer seems to be neither for economic forecasts.
Rather, price rise might be stagnating at its current pace—not very rapid, but not sluggish enough to allay economic policymakers’ fears that consumers won’t be able to put up with the uncomfortably high rate of price increases.
The most recent consumer price index data for November will be made public by the Bureau of Labor Statistics on Wednesday. The so-called core measure, which excludes more volatile goods like food and gas, showed 0.3% monthly gain and 3.3% annual growth, according to analysts surveyed by Dow Jones ahead of the report, which projected an inflation picture that was mostly unchanged from October.
The Federal Reserve, which had anticipated to continue lowering interest rates as the new year got underway in concert with slower price increases, would be concerned about that stalled momentum. Analysts now predict that the Fed will most likely halt its rate-cutting intentions in January.
November’s potentially troublesome image was probably caused by a number of variables, such as rising rent prices, a recovery in the market of secondhand cars, and steadily rising auto insurance rates.
More generally, the economy is still supported to a large extent by wealthy and upper-middle-class people who are more resistant to price increases and who occasionally have the ability to speed them up through their spending. The value of more costly assets, such as stocks and real estate, has skyrocketed for these customers, while the cost of commonplace items has also gone up in recent years, making things more expensive for everyone else.
It is a key factor in why Donald Trump performed better in the November presidential election among voters from lower socioeconomic groups.
However, it is uncertain if expectations of less financial strain on households during Trump’s second term in office will come to pass. Trump himself told NBC News last weekend that he couldn’t promise that tariffs wouldn’t wind up raising prices. Economists generally predict that Trump’s strategy of tariffs and deportations will be inflationary and so detrimental to economy.
This makes things much more difficult for the Fed as it attempts to plan a soft landing for the US that lowers inflation without significantly hurting the economy.
When the Fed meets next week for its last meeting of 2024, almost all Wall Street traders predict that it will lower its benchmark interest rate by another quarter point.
All bets are off after that.
In a note to clients this week, Ian Shepherdson, chief economist at Pantheon Macroeconomics, predicted that November’s data will demonstrate that efforts to lower core CPI inflation have stalled since June. He stated that the Fed will not be willing to presume that any tariff-led consumer price inflation in the upcoming year will be entirely temporary because families’ medium-term inflation expectations are still high.
As a result, he stated, we anticipate that the FOMC [the Federal Reserve] will lower the funds rate more slowly than is necessary to stabilize the unemployment rate.
Furthermore, it’s unclear if the rate reduction implemented by the Fed are having a significant impact on interest rates throughout the rest of the economy. In the third quarter, credit card interest rates kept rising, but the average 30-year mortgage rate remained slightly below 7% despite being less directly impacted by Fed policies.
However, consumers who are less wealthy seem to be the ones who are most affected by increasing rates. According to Moody’s Analytics chief economist Mark Zandi, the startling surge in asset values has continued to help wealthier Americans.
He asserted that many of those assets are already overpriced and that it would be simple to reverse that trend.
According to Zandi, any deviation from the plan that alters the outlook for the economy—such as slower growth or greater inflation—could lead to a significant sell-off and pose issues for the overall economy.
In a flash, everything will be OK, and then it won’t be.
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