Inflation Data Shows Cooling, Likely Keeping Rates Steady for the Federal Reserve
The latest consumer price inflation data released on Tuesday is indicating a slowing of price increases, suggesting that the Federal Reserve will likely leave interest rates unchanged at its upcoming meeting. The data shows that inflation remains lower than earlier this year, which will be a factor in the path the Federal Reserve chooses to take as they make their next economic projections on Wednesday.
The Consumer Price Index revealed that overall inflation climbed just 0.1 percent on a monthly basis, making for a 3.1 percent increase compared to a year earlier. This is cooler than the 3.2 percent in October and significantly lower than the peak above 9 percent in the summer of 2022.
Despite this trend, some of the underlying details of the report could give the Federal Reserve some cause for concern. Core inflation, which strips out volatile food and fuel, increased more quickly on a monthly basis, and a closely watched measure that tracks housing expenses, known as “owners’ equivalent rent,” also climbed more quickly than expected.
Blerina Uruci, chief U.S. economist at T. Rowe Price, commented on this, saying, “It reinforces this idea that it’s going to be a bumpy road to disinflation. The Fed cannot cut interest rates too soon in the face of resilient services inflation.”
Even with the recent cooling of inflation, Federal Reserve officials remain hesitant to declare victory as inflation is still considered elevated. While investors expect borrowing costs to come down as early as the first half of 2024, the central bankers are being cautious in assessing the current economic situation.
Neil Dutta, head of economic research at Renaissance Macro, noted, “Inflation is falling much more quickly than they’d expected, and the new number doesn’t really change that,” in response to the recent data.
However, with housing costs showing “stickiness,” as Ms. Uruci pointed out, the expected cuts in interest rates may be pushed to later in the year. These factors indicate that policymakers will continue to monitor the situation closely before making any big decisions.
Inflation has been volatile over the past few years, making it difficult for experts to confidently predict its trajectory. As Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, mentioned, “It’s hard to be confident after the last few years.”
The Federal Reserve is set to release their final interest rate decision and quarterly economic projections on Wednesday, and investors will be eagerly watching to see how the central bank responds to the latest inflation data.