Closely watched inflation indicators continued to show signs of weakening in October, a challenge for the Fed as officials try to determine whether further action is needed to halt rapid price increases once and for all. This was encouraging news.
The measure of consumer spending inflation that the Fed cites when it says it aims for average inflation of 2% over the long run rose 3% in the year to October.it was from 3.4 percent The previous month was in line with economist forecasts. Compared to the previous month, prices were flat.
After excluding volatile food and fuel prices to give a clearer picture of underlying price pressures, inflation rose 3.5% over the year. This is down from 3.7% previously.
The latest evidence that price increases are slowing comes along with other positive news for Fed officials that consumer spending is slowing. Personal consumption increased by 0.2% compared to September, slowing slightly from the previous month.
The report could provide important insights for Fed officials as they prepare for their final meeting of 2023 on December 12-13. Investors widely expect policymakers to keep borrowing costs unchanged at the meeting, but central bankers will issue new economic forecasts that could hint at future policy plans. Federal Reserve Chairman Jerome H. Powell will also hold a press conference.
“They will still want to be cautious about declaring ‘mission accomplished’ too soon,” said Omail Sharif, founder of Inflation Insights. Still, “we’ve continued to have very good reads.”
Policymakers have been keeping a close eye on how both inflation and consumer spending are shaping up as they assess how to proceed. It has already raised interest rates to a range of 5.25% to 5.5%, the highest level in more than 20 years. Given this situation, many officials have suggested that it may be time to pause and wait to see how policy develops.
New York Fed President John C. Williams signaled in a speech Thursday that he expects inflation to ease enough for the Fed to finish raising interest rates now, but said officials could raise rates further if data stabilize. Ta. He surprised them.
“If price pressures and imbalances persist longer than I expect, further policy tightening may be necessary,” Williams said. He reiterated his assessment that the Fed is “at or near the high end of its target range for the federal funds rate.”
The economy has been more resilient to these higher borrowing costs than most expected, which is one reason the Fed remains cautious. If strong demand allows companies to keep raising prices without losing customers, it could become even more difficult to completely overcome inflation.
Still, recent signs that consumers and businesses are finally becoming more cautious have been welcomed at the Fed.
“Based on the statistics we have, we are encouraged by the early signs that economic activity will slow in the fourth quarter,” Christopher Waller, a member of the Fed’s board, said this week. “Inflation remains too high and it is too early to tell whether the slowdown in inflation we are currently seeing will be sustained,” he said.
Sharif noted that the debate on Wall Street is centered around when the first rate cut will occur, and that the Fed’s future outlook for the economy should provide insight.Some of Waller’s remarks this week fueled speculation The cuts could come early next year.
But Sharif said, “We don’t want to get too far ahead of the skies right now,” noting that the data has gotten better in the past before getting worse again. He thinks the Fed won’t want to start talking too aggressively about cutting rates until it has data for late 2023 or early 2024.
“They’re going to want to be a little more cautious now,” he said.