Inflation is roughly flat ahead of the Fed meeting

Inflation data released on Tuesday showed that price increases moderated in November, the latest sign that inflation has eased significantly from the June 2022 peak. The Federal Reserve is likely to keep interest rates on track at its year-end meeting this week.

The consumer price index came out hours before the central bank began its two-day gathering, which will conclude at 2pm on Wednesday with an interest rate decision and new quarterly economic forecasts. Federal Reserve Chairman Jerome H. Powell is scheduled to hold a news conference later.

Central bankers acknowledged a recent slowdown in price increases, and data on Tuesday suggested inflation was lower than earlier this year. Headline inflation rose 0.1 percent on a monthly basis, up from 3.1 percent a year earlier.

That’s cooler than October’s 3.2 percent, and it’s down significantly from a peak of more than 9 percent in summer 2022.

But some of the key details in the report may have central bank officials on guard as they ponder what to do next with interest rates. Investors expect central bankers to start cutting borrowing costs in the first half of 2024, although officials are trying to keep their options open.

To give a clearer sense of underlying inflation trends, after stripping out volatile food and fuel, so-called core inflation rose more quickly on a monthly basis. A closely watched gauge that tracks household costs also rose quickly; That measure is called “ownership equity rent” because it estimates how much it costs to rent a home that someone owns, and economists expect it to fall.

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D. “This reinforces the idea of ​​a flat path for inflation,” said Blerina Urucci, chief U.S. economist at Rowe Price. “The Fed cannot cut interest rates too soon in the face of resilient services inflation.”

Core inflation rose 4 percent from a year earlier, steady since October. That pace is faster than the roughly 2 percent pace that was normal before the pandemic began.

Many economists expect inflation to continue to decline in 2024.

This is partly a function of monetary policy. Fed officials raised rates sharply in March 2022 and this summer in an effort to slow the economy, hoping to cool demand enough to reduce inflation. The housing market has cooled somewhat and the car market has calmed down as borrowing to make large purchases has become more expensive.

Policy makers have also received help from the supply side of the economy. Shipping routes were blocked during the epidemic, but later cleared, and factories adapted to demand to ease shortages for some key products. The return to normalcy has helped lower commodity prices in recent months.

As workers return to the labor market, filling open jobs, wage gains cool — which may suggest that labor-intensive service industries stop raising prices as quickly.

Central bank officials have kept borrowing costs steady for several months now as they try to assess whether they have adjusted policy enough to return inflation to a normal pace over time.

“They should be very encouraged,” Neil Dutta, head of economic research at Renaissance Macro, said following the report. “Inflation is falling much faster than they expected, and the new number doesn’t really change that.”

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However, central bankers have been reluctant to declare victory at a time when inflation is improving but remains high. While many expect the Fed’s next move to be an interest rate cut, economists expect them to adopt that cautious approach this week.

“It would be premature to confidently conclude that we have reached a sufficiently restrictive stance or to speculate when policy will be eased,” Mr. Powell said. Recent talk.

Investors expect borrowing costs to ease in the first half of 2024. Market expectationsA continued economic slowdown or stubborn prices could delay that.

Ms Urucci said in Tuesday’s report that the stickiness in household spending would “push any expected cuts to later in the year”. Policymakers may not want to change course at a time when inflation is still stuck at inflated rates.

Inflation has repeatedly surprised forecasters since 2021.

“It’s hard to be optimistic after the last few years,” said Laura Rosner-Warburton, senior economist at Macro Policy Perspectives.

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