In November, price rise accelerated slightly, suggesting that attempts to reduce inflation may be coming to a standstill.
The Bureau of Labor Statistics said Wednesday that the consumer price index increased 2.7% over the previous 12 months. Although it was higher than the 2.6% annual rate in October, it was still in line with forecasts. The index increased by 0.3% on a monthly basis, which was higher than the 0.2% rate the month before.
As in October, the “core” measure of inflation, which does not include more volatile commodities like food and gas, increased 3.3% over a 12-month period. The core index increased by 0.3% on a monthly basis, continuing its three-month trend. While shelter prices and the category that includes auto insurance saw drops, the monthly pace of price rises stepped up for new cars and clothing.
The Federal Reserve, which had hoped to continue cutting interest rates into next year in concert with slower price increases, is under more pressure now that the momentum has paused. Analysts now anticipate that the Fed will halt rate cuts in January.
“Price pressures are hardly settling at a level that the Fed can be completely at ease with,” Principal Asset Management chief global strategist Seema Shah wrote in a note to investors after the publication on Wednesday.
The Fed will be worried about the extremely obstinate nature of inflation and will be more wary of the upside inflation risks that President-Elect Trump’s plans may bring, she added. In January, we anticipate that the Fed will take a more cautious stance and slow down its rate of reduction to just every other meeting.
Wealthy and upper-middle-class customers, who are typically better protected from price increases, are supporting the economy with their spending power. They can speed it up, though. 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’s one of the reasons Donald Trump performed better in the presidential election held in November among people from lower socioeconomic backgrounds. However, it is uncertain if, once in office, he would be able to alleviate the financial strain on households.According to economists, Trump’s plans for mass deportations and tariffs will damage growth and increase inflation. Last weekend, the president-elect told NBC News that he couldn’t guarantee that tariffs wouldn’t result in higher prices.
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. However, he noted that many of those assets are already overpriced and that it would be easy 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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