A Inflation was closely monitored November was particularly chilly, positive news for the White House as Federal Reserve officials move toward the next phase in their fight against rapid price increases and voters seek relief from rising costs.
An inflation measure of personal consumption expenditures rose 2.6 percent in the year to November, the central bank cited as saying it aims for an average inflation rate of 2 percent over time. That was 2.9 percent in the previous month, lower than economists had predicted. Compared to the previous month, overall prices fell slightly for the first time.
That decline — a 0.1 percent drop, and the first negative reading since April 2020 — came As gas prices Abandoned. After volatile food and fuel prices are stripped out for a clearer view of underlying price pressures, inflation rose modestly on a month-on-month basis and 3.2 percent on the year. It was earlier 3.4 percent.
Although still faster than the central bank's target, the report provided the latest evidence that inflation is quickly returning to the central bank's target. After more than two years of fast inflation weighing on U.S. shoppers and policymakers, months of solid progress have helped convince policymakers they may be turning a corner.
Increasingly, officials and economists think they may be on the lookout for a soft economic landing — one in which inflation returns to normal without a painful recession. Central bank policymakers kept interest rates steady at this month's meeting, suggesting they would be better off raising interest rates and cutting borrowing costs three times next year.
“Inflation is coming down much faster than the Fed expected — it could cut sooner, and more aggressively,” said Gennady Goldberg, head of U.S. rates strategy at DD Securities. “They're doing everything they can to provide a soft landing here.”
The inflation improvement is welcome news for the Biden administration, which has struggled to capitalize on strong economic growth and low unemployment.
President Biden issued a statement Celebrating the report, Lyell Brainard, director of the National Economic Council, called the slowdown in inflation “a significant milestone” on a call with reporters.
“Inflation has come down faster than the most optimistic forecasts,” he said, noting that wage gains have outpaced price increases. While he did not comment directly on monetary policy, citing the Fed's independence from the White House, he noted that households are already facing lower mortgage rates as investors expect a more dovish central bank.
“Inflation has come down from its peak, and it's come without a significant increase in unemployment — which is very good news,” said Fed Chairman Jerome H. Powell told the crowd. However, he emphasized that “the path forward is uncertain.”
As they ponder when to start cutting rates, central bankers may be watching closely for signs that inflation may continue to cool. Some officials have suggested that keeping borrowing costs steady would effectively squeeze the economy while price inflation slows. (Interest rates are not price-adjusted, so they tend to be higher after removing inflation because of lower inflation.)
However, central bank officials have been reluctant to declare victory after repeated fakes, in which price increases proved more stubborn than expected, and at a time when geopolitical issues could complicate supply chains or drive up gas prices.
“The more benign inflation data is certainly something to celebrate, but there is some turbulence ahead,” Omair Sharif, founder of Inflation Insights, wrote in a note reacting to Friday's data. “Central bank officials will want to go ahead and focus on rate cuts.”
Consumer spending will be closely monitored as policymakers try to figure out how much momentum is left in the economy.
The Report published Friday showed consumers are spending at a more modest clip. Private consumption rose 0.2 percent from October and 0.3 percent after adjusting for inflation. Both readings were faster than the previous month. Although not as hot as it was earlier this year, it suggested that growth is still positive.
Officials still expect the economy to slow more significantly in 2024, which they think will pave the way for sustained slower price increases.
A year later, despite surprisingly strong growth, inflation has cooled rapidly, and economists are expressing optimism. But policymakers are wary of a scenario where growth is too strong.
“If you have strong growth, that means we're going to keep the labor market very strong; that could put some upward pressure on inflation,” said Mr. News conference. “This means it will take longer to reach 2 percent inflation.”
That, he said, “means we have to keep rates high for a long time.”