January’s month-to-month price increase will likely underscore the concern expressed recently by Federal Reserve officials about the risk of cutting interest rates too soon this year.
In minutes from the Jan. 30-31 meeting released Wednesday, most Fed officials said they were worried about moving too fast to cut their benchmark interest rate before it was clear that inflation was sustainably returning to their 2% target.
The prices of services—hotel rooms, restaurant meals, auto insurance, apartment rents and the like—are still rising faster than they did before the pandemic and keeping overall inflation persistently high.
Wages rose unexpectedly fast in January, too. The strong hiring and wage growth could complicate or delay the Federal Reserve’s intention to start cutting interest rates later this year.
The Federal Reserve indicated Wednesday that it’s nearing a long-awaited shift toward cutting interest rates, a sign that its officials have grown confident that they’re close to fully taming inflation.
Pay and benefits for America’s workers grew in the final three months of last year at the slowest pace in two and a half years, a trend that could affect the Federal Reserve’s decision about when to begin cutting interest rates.
With inflation having dropped sharply after an extended period of gloomy consumer sentiment, Americans are starting to show signs of feeling better about the economy.
The Labor Department reported Friday that its producer price index—which tracks inflation before it reaches consumers—declined 0.1% from November to December after falling 0.1% in November and 0.4% in October.
However, excluding volatile food and energy costs, so-called core prices rose just 0.3% month over month, unchanged from November’s increase.
Inflation is steadily moving down to the Fed’s year-over-year target of 2% and appears to be clearing the way for Fed rate cuts in 2024. That, in turn, could translate into lower rates on everything from mortgages to credit cards.
The markets have been on a celebratory tear in recent weeks, as signs pile up that the Federal Reserve may be done raising interest rates.
The Fed’s quarterly economic projections showed that its officials envision a “soft landing” for the economy, in which inflation would continue its decline toward the central bank’s 2% target without causing a steep downturn.
Wednesday’s report reinforced the belief that inflation pressures are cooling across the economy.
The latest data on consumer inflation showed that prices in some areas—services such as rents, restaurants and auto insurance—continued to rise uncomfortably fast.
Tuesday’s inflation report from the Labor Department is expected to show that businesses kept overall prices unchanged for a second straight month. But a closely watched category called “core prices” is predicted to outpace the Federal Reserve’s 2% annual target.
Only 24% of economists surveyed by the National Association for Business Economics said they see a recession in 2024 as more likely than not.
Inflation is slowing steadily, but it’s too early to declare victory or to discuss when the Federal Reserve might cut interest rates, Chair Jerome Powell said in prepared remarks Friday.
The figures are consistent with expectations that the economy will moderate in the fourth quarter following the strongest growth pace in nearly two years.
Christopher Waller, a member of the Federal Reserve Board of Governors, cautioned that inflation is still too high and that it’s not yet certain if a recent slowdown in price increases can be sustained.
Many retailers ordered fewer goods for this holiday season and pushed holiday sales earlier in October than last year to help shoppers spread out their spending.
