Inflation Eases but Remains 300 Percent Above Fed’s Target, New Data Shows

Inflation Eases but Remains 300 Percent Above Fed’s Target, New Data Shows
Federal Reserve Chair Jerome Powell speaks during a news conference in Washington on Nov. 2, 2022. Elizabeth Frantz/Reuters
Bryan Jung
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New data shows that U.S. inflation rates have eased but still remain 300 percent above the Federal Reserve’s target.

The personal consumption expenditures index (PCE) for October, a measure of inflation that is closely monitored by the Fed, was released on Dec. 1 by the Bureau of Economic Analysis.

The central bank is using the headline PCE index as a measure to reach its 2 percent annual inflation target without causing a major recession in the process.

The Fed has raised its benchmark rate six times since March due to the worse inflation in over 40 years, with four consecutive 75 basis point hikes since the summer.

Fed policymakers hope that aggressive tightening will further slow prices, as inflation rates have eased from its record high of 9.1 percent back in June.

October’s inflation report showed that prices rose 7.7 percent from a year earlier, according to the Consumer Price Index, which is not as closely followed by the Fed when compared to the PCE.

The gauge reported an ease in price gains in October, but levels still remained high, which will lead the Fed to continue raising interest rates to slow the economy in its fight against inflation.

General prices rose 6 percent in October from 2021, the smallest increase since November of last year and down from a 6.3 percent year-over-year rise in September.

Core price inflation for October, not including volatile food and energy prices, rose 5 percent over the past year, a drop from 5.2 percent from the previous month.

Total prices rose 0.3 percent from September to October on a month-to-month basis, while core prices grew 0.2 percent.

American Consumers Continue to Spend In October, Even As Prices Rise

The PCE report showed that American consumers were continuing to spend in October as they adjusted their habits for inflation.

It appears that Americans were still willing to spend in the fall, even in the face of high prices.

Spending rose 0.8 percent in October, or at 0.5 percent after taking into account the rise in costs, but after-tax income failed to keep up with the rate of price increases, which was at 0.4 percent when adjusted for inflation.

A shopping cart in a supermarket as inflation affected consumer prices in Manhattan, New York, on June 10, 2022. (Andrew Kelly/Reuters)
A shopping cart in a supermarket as inflation affected consumer prices in Manhattan, New York, on June 10, 2022. Andrew Kelly/Reuters

Many consumers have been forced to dip into their savings to keep up with inflation, as the savings rate for October tumbled to 2.3 percent, for the lowest reading since 2005.

Fed Chairman Jerome Powell made a speech at the Brookings Institution on Nov. 30, where he said that the Fed might slow its rate hikes to a 50 basis point increase at its next FOMC policy meeting from Dec. 13-14.

“We think that slowing down at this point is a good way to balance the risks,” Powell said.

“The time for moderating the pace of rate increases may come as soon as the December meeting,”

Analysts hope that rate increases could then fall to a modest 25 basis points at the Fed’s meetings in February and March meetings, based on previous forecasts.

“Despite some promising developments, we have a long way to go in restoring price stability,” Powell concluded.

Powell’s afternoon comments on rate policies immediately caused a rally on Wall Street.

Signs Increase For An Economic Slowdown

However, the Fed chair said that policymakers would maintain their key rate at a high level for an extended period, which will continue to have a negative effect on consumer and business loans.

The increase in interest rates has made borrowing costs more expensive, particularly in the housing market, which has lately seen a surge in mortgage rates.

U.S. mortgage rates have doubled from a year ago, causing home sales to drop for the last nine months.

Many economists and business leaders worry that the higher loan rates will push the country into a recession next year as its effects begin to be felt in the economy.

This “Trend is concerning. Fed needs to cut interest rates immediately. They are massively amplifying the probability of a severe recession,” wrote Elon Musk in a tweet.

“The Fed stayed too easy for too long totally misreading inflation and now they’ve tightened aggressively into the highest debt construct ever without accounting for the lag effects of these rate hikes risking they'll be again late to realize the damage done,” said Northman Trader founder, Sven Henrich, in a responding tweet.

So far, the overall economy still shows signs of durability, with U.S. GDP rising 2.9 percent annually in the third quarter, according to a revised Commerce Department report on Nov. 30,

The job market did make gains at a rate of 407,000 jobs a month this year, and unemployment is still at a 50-year low, but November saw the first signs of major layoffs, with 52,771 in the tech sector alone, according to Challenger, Gray & Christmas.

Investors are awaiting the Dec. 1 report on weekly unemployment claims and the closely watched monthly report on the job market, which is expected on Dec. 2.

Associated Press contributed to this report.
Bryan Jung
Bryan Jung
Author
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
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