New data shows that U.S. inflation rates have eased but still remain 300 percent above the Federal Reserve’s target.
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.
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.
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.
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.
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,
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.
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