November saw a little increase in price rise, which suggests that attempts to reduce inflation in the US economy may be coming to a standstill.
The Bureau of Labor Statistics said Wednesday that the consumer price index increased 2.7% on an annual basis. Although it was higher than the 2.6% measure recorded in October, it was still in line with forecasts.
The “core” metric, which excludes more volatile commodities like food and gas, increased 3.3%, staying constant from October.
The Federal Reserve, which had intended to continue lowering interest rates as the new year got underway in concert with slower price increases, would be concerned about the delayed 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.
Generally speaking, wealthy and upper-middle-class customers are supporting the economy with their buying power, which can both accelerate and better protect them from price increases. Even while everyone’s daily expenditures have become more expensive, the value of these consumers’ assets, such as stocks and real estate, has skyrocketed.
It is a key factor in why Donald Trump performed better in the November presidential election among voters from lower socioeconomic groups.
However, it’s questionable if, once in office, he can actually lessen the financial strain on households.The president-elect himself told NBC News last weekend that he couldn’t guarantee that tariffs wouldn’t wind up rising prices. Economists have predicted that Trump’s plans for mass deportations and tariffs will damage growth and increase inflation.
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 ahead of the inflation report, Ian Shepherdson, chief economist at Pantheon Macroeconomics, stated that the Fed will not be willing to assume that any tariff-led consumer price inflation next year will be entirely temporary because households’ 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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