Jerome Powell’s more nuanced remarks Wednesday appeared to be an effort to quell any assumption that the Fed has already decided to raise rates more aggressively based on a recent string of data that pointed to strong economic growth and still-high inflation.
Most economists and Wall Street investors had expected the Fed to carry out another quarter-point increase when it next meets March 21-22. But in recent days, traders have been pricing in a greater likelihood of a half-point increase.
U.S. central bankers are waging their most aggressive action against high inflation in a generation.
Here’s a closer look at the economy’s vital signs at a perplexing time of high interest rates, still-punishing inflation and surprisingly strong economic gains.
January’s price data exceeded forecasters’ expectations, confounding hopes that inflation was steadily decelerating and that the Fed could relent on its campaign of rate hikes.
Wholesale prices in the United States reaccelerated in January, indicating that inflation pressures continue to underlie the U.S. economy despite longer-term signs of improvement.
Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain high and are likely to fuel price spikes well into this year.
Jerome Powell’s remarks followed the government’s blockbuster report last week that employers added 517,000 jobs in January, nearly double December’s gain. The unemployment rate fell to its lowest level in 53 years, 3.4%.
The Fed’s latest move, though smaller than its previous hike—and even larger rate increases before that—will likely further raise the costs of many consumer and business loans and the risk of a recession.
Pay and benefits for America’s workers grew at a healthy but more gradual pace in the final three months of 2022, the third straight slowdown that could help reassure the Federal Reserve that wage gains won’t fuel higher inflation.
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.
