The International Monetary Fund, a 190-country lending organization, foresees inflation easing this year, a result of aggressive interest rate hikes by the Federal Reserve and other major central banks.
With signs of weaker economic growth along with steadily lower inflation readings, reduced consumer spending and even some signs of a slowdown in the job market, the Federal Reserve is now navigating a more treacherous terrain.
The figures added to mounting evidence that the worst bout of inflation in a generation has passed as the Fed’s aggressive tightening campaign works its way through the economy.
The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell — the latest evidence that the Fed’s series of interest rate hikes are slowing the economy.
Loretta Mester, a key Federal Reserve policymaker, said further rate hikes are still needed to decisively crush the worst inflation bout in four decades.
The ongoing slowdown in wholesale price growth is adding to evidence that the worst bout of inflation in four decades is steadily easing, though it remains far above the Federal Reserve’s target of 2%.
The softer readings add to growing signs that the worst inflation bout in four decades is gradually waning. Still, the Fed doesn’t expect inflation to slow enough to get close to its 2% target until well into 2024.
The U.S. inflation report for December being released Thursday morning could provide another welcome sign that the worst bout of spiking prices in four decades is slowly weakening.
An economic downturn is still possible. Yet in recent weeks, with inflation showing widespread signs of easing, a more cheerful view has gained traction: Maybe a recession isn’t inevitable after all.
America’s employers added a solid 223,000 jobs in December, but average hourly pay growth eased in December to its slowest pace in 16 months.
Overall, the minutes showed that Federal Reserve officials remained determined to keep rates high to quell inflation and have taken little comfort from inflation’s decline from a peak of 9.1% in June to 7.1% in November.
Friday’s report from the Commerce Department showed that prices rose 5.5% in November from a year earlier, down from a revised 6.1% increase in October and the smallest gain since October 2021.
The rise in gross domestic product—the economy’s output in goods and services—marked a return to growth after consecutive drops in the January-March and April-June periods.
This year, supply chain snags have eased and shoppers aren’t as worried about availability as they are about higher prices on everything from rent to food, causing them to postpone their buying until the last minute.
Megadeals announced early in the year were soon replaced by jitters about getting mergers and acquisitions over the finish line, with monthly deal activity plummeting by almost half from May to June. The volumes have yet to recover.
An AARP report released last month showed more than a third of people 65 and older described their financial situation at midyear as worse than it was 12 months before.
Americans cut back on retail spending last month as the holiday shopping season began, with high prices and rising interest rates forcing families to make harder decisions about what they buy.
Consistent with a sharp slowdown, Fed officials projected that the economy will barely grow next year, expanding just 0.5%, less than half the forecast it had made in September.
The six rate hikes the Fed has already imposed this year have raised its key short-term rate to a range of 3.75% to 4%, its highest level in 15 years.
The report, the last of 2022, points to inflation that—while much too high—is beginning to ease.
