Inflation Remains Sticky as Fed Fights to Meet 2% Target
The latest data from the Bureau of Economic Analysis (BEA) reveals that price increases slowed down in November, but still remain above the Federal Reserve’s 2% target. This news comes on the heels of the central bank’s decision to cut interest rates by 25 basis points at its last policy meeting of the year.
Core PCE Index Sees Modest Increase
The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs, rose 0.1% from the prior month, a deceleration from October’s 0.3% monthly gain. This increase was slightly lower than economist expectations of a 0.2% rise. Over the prior year, core prices rose 2.8%, matching the increase seen in October and below Wall Street’s expectations of a 2.9% rise.
Yearly Basis Shows Pickup
On a yearly basis, overall PCE increased 2.4%, a pickup from the 2.3% seen in October. Economists polled by Bloomberg had anticipated a yearly increase of 2.5%.
Sticky Inflation Readings Persist
This latest data follows sticky inflation readings from other November datasets. The core Consumer Price Index (CPI) saw prices in November climb 3.3% over last year for the fourth consecutive month. Meanwhile, the core Producer Price Index (PPI) revealed prices increased by 3.4% annually in November, up from a 3.1% jump in October.
Fed Chair Jerome Powell Weighs In
In a press conference following Wednesday’s interest rate decision, Federal Reserve Chair Jerome Powell acknowledged that the last mile of the Fed’s fight to curb inflation has been more challenging than central bank leaders initially projected. Powell noted that inflation has underperformed relative to expectations, making it the single biggest factor in the Fed’s decision-making process.
Uncertainty Ahead
The Federal Reserve sees core inflation peaking at 2.5% next year, higher than September’s projection of 2.2%, before cooling to 2.2% in 2026 and 2.0% in 2027. This higher inflation outlook, coupled with a slower pace of interest rate cuts next year, has pressured markets. The election of Donald Trump as the nation’s next president has added to the uncertainty, with some economists arguing that the US could face another inflation resurgence if Trump follows through with his key campaign promises.
Trump’s Policies Could Complicate Fed’s Path
Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are considered by economists as potentially inflationary. These policies could further complicate the Federal Reserve’s path forward for interest rates. Powell cautioned that the extent of policy adjustments remains uncertain, and the Fed is “thinking about these questions.”
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