WASHINGTON (AP) — It is the most painful inflation Americans have been experiencing something like this since 1981, when “The Dukes of Hazzard” and “The Jeffersons” topped the TV charts. But the Fed now appears on the verge of defeating the Federal Reserve, barring the accompanying spike in unemployment and a deep recession that many economists believe will occur.
Inflation has been falling more or less steadily since peaking at 9.1% last June. And when the Fed’s preferred inflation measure for November is released next week, it will likely show that annual inflation over the past six months has actually been slightly below the Fed’s 2% target, according to UBS. Economists estimate.
Prices of goods such as used cars, furniture and electronics fell for the sixth consecutive month. Compared to a year ago, commodity prices have remained unchanged, but are being held back by improvements in global supply chains.
Growth in housing costs and rents, the main drivers of inflation, has slowed. Wage growth has also slowed, but remains above the inflation rate. Slower wage growth tends to ease pressure on restaurants, hotels and other employers to raise prices to cover labor costs.
“I think it’s really good to see the progress we’re making,” Chairman Jerome Powell said Wednesday at a news conference after the Fed’s latest policy meeting. “If you look at the six-month measurements, you see very low numbers.”
On Friday, the Congressional Budget Office, a bipartisan agency, Inflation is expected to fall to 2.1% By the end of next year.
Officials said the road to fully controlling inflation is expected to be difficult. “No one is declaring victory,” Powell said. He reiterated that the central bank wants to see further evidence of falling inflation before becoming confident that inflation is sustainably returning to its 2% target.
But many normally cautious economists are now enthusiastically declaring that inflation is largely back under control after more than two years of hardship for millions of American households.
“Inflation appears to be back at 2%,” said Tim Dewey, chief economist at SGH Macroeconomics. “The Fed appears to have won that battle.”
Price hikes are slowing down overseas as well. bank of england and european central bank The base interest rate will remain unchanged this week. Inflation in the UK remains at 4.6%, but has fallen to 2.4% in the 20 countries that use the euro currency.
With inflation slowing, Powell said the 19 officials on the Fed’s policy-setting committee met this week to discuss the prospects for rate cuts. Officials also expected the Fed to cut key interest rates three times next year.
This stance marks a dramatic change from the Fed’s interest rate hike campaign, which began in March 2022. Since then, the Fed has raised its benchmark interest rate 11 times, from near zero to about 5.4%, the highest level in about 22 years. Slower borrowing, spending, and inflation. As a result, the cost of mortgages, auto loans, business borrowing, and other forms of credit has increased significantly.
With Chairman Powell’s suddenly optimistic statements and the prospect of a Fed rate cut, Stock index soars this week. Wall Street traders currently believe there is a roughly 80% chance that the first rate cut will occur at the Fed’s March meeting, and they expect a total of six rate cuts in 2024.
On Friday, John Williams, president of the New York Fed and Mr. Powell’s chief aide, sought to put a damper on those hopes. Williams said on CNBC that it’s “too early to think” about whether the Fed will cut rates in March. But he also cited his expectation that inflation would fall “sustained” to 2%.
This week’s events represent a change from just two weeks ago, when Powell made policy decisions. said it was “premature” This is to determine whether the Fed has raised its key interest rate enough to completely overcome high inflation. He suggested Wednesday that the Fed is almost certainly done raising interest rates.
Recent data appears to have helped Mr. Powell change his mind.Wednesday wholesale price indicators lower than economists’ expectations. Some of these numbers are used to create the Fed’s recommended inflation measure, which is expected to result in much lower inflation numbers next week.
Powell said some Fed officials even updated their economic forecasts on Wednesday, just before the announcement, following the weaker-than-expected wholesale price report.
“The speed with which inflation has fallen is like an earthquake at the Fed,” Duy wrote in a note to clients on Wednesday.
But all the while, the economy continues to grow, defying widespread concerns from a year ago that a recession would occur in 2023 as a result of much higher borrowing rates engineered by the Fed.a Thursday’s report on retail sales The data showed that consumer spending increased last month, likely driven by wider discounts that led to lower inflation. These trends underpin growing confidence that the economy will achieve the elusive “soft landing” in which inflation is defeated without a recession.
“The Fed can’t believe its good fortune. We are back to ‘perfect disinflation,'” Krishna Guha, an economic analyst at investment bank Evercore ISI, said in a note to clients.
Economists credit the Fed’s rapid interest rate hikes with contributing to the decline in inflation.Additionally, global supply chain recovery and The number of Americans increases rapidly — and recent immigrants — looking for work is helping to slow the pace of wage growth.
Jon Steinson, an economics professor at the University of California, Berkeley, said that Fed officials have almost flattened Americans’ inflation expectations by aggressively raising key interest rates in about 15 months, the fastest pace in 40 years. He said he was restraining it. Expectations can become self-fulfilling. When people expect inflation to rise, they often take actions that can cause prices to rise further, such as demanding higher wages.
“They played an important role,” Steinson said.
Still, a continued decline in inflation is not guaranteed. One of the wildcards is the rental price. Real-time measurements of new apartment rental prices show that costs are rising much more slowly than a year ago. It will take time for that data to be reflected in government figures. In fact, excluding what the government calls “shelter” costs – rent, homeownership costs and hotel prices – inflation rose just 1.4% last month compared to the same month last year.
But Nationwide economist Kathy Bojancic said she was concerned that a lack of available housing could cause housing costs to rise in the coming years and inflation to remain high.
Vostjancic said the Fed’s rate hikes could actually prolong the supply shortage. Today’s rising mortgage rates are limiting home construction while potentially discouraging current homeowners from selling. Both trends will continue to constrain housing supply and drive prices higher.
But Fed officials appear confident in their prediction that inflation is steadily slowing. In September, 14 out of 19 Fed policymakers said there was a risk that inflation would rise faster than expected. This month, only eight people said so.
“Their forecasts have mostly been revised downwards, and we think it’s less likely that inflation will flare up again,” said Preston Mui, senior economist at Employ America, an advocacy group.
