Written by AP Economics Writer Christopher Ruger
Washington (AP) Inflation in the US increased little last month, but it was still well below its two-year peak due to higher prices for used automobiles, lodging, and auto insurance.
In November, consumer prices increased 2.7% over the previous year, up from a 2.6% annual increase in October. So-called core prices rose 3.3%, the same as the previous month, excluding volatile food and energy expenses.
Consumer prices increased by 0.3% between October and November, the largest monthly increase since April. For the fourth consecutive month, core prices also increased by 0.3%.
The last significant piece of information that Fed officials will take into account before their meeting next week to determine interest rates is Wednesday’s inflation data from the Labor Department. The majority of economists and Wall Street traders anticipate that the officials will lower their benchmark rate by a quarter-point, and the relatively modest hike is unlikely to deter them.
The Federal Reserve cut its benchmark rate, which influences a lot of commercial and consumer lending, by a quarter-point in November and a significant half-point in September. The central bank’s key rate dropped from a four-decade high of 5.3% to 4.6% as a result of those cutbacks.
Average costs are still around 20% higher than they were three years earlier, despite the fact that inflation is now much below its peak of 9.1% in June 2022. This was a big factor in the public’s unhappiness, which contributed to President-elect Donald Trump’s triumph over Vice President Kamala Harris in November. However, the majority of analysts anticipate that inflation will continue to fall next year, moving closer to the Fed’s 2% objective.
Even as inflation slowly cools toward their goal level, Fed officials have stated that they anticipate it to follow a rocky road. Several of the central bank’s policymakers emphasized in speeches last week that they no longer saw the need to maintain their benchmark rate at such a high level because inflation had already started to decline.
The Fed usually lowers interest rates in an effort to boost the economy just enough to increase employment without raising inflation. However, the American economy seems to be doing well. In the July–September quarter, it expanded at a robust 2.8% annual rate, supported by robust consumer expenditure. Because of this, several analysts on Wall Street have said that the Fed doesn’t really need to lower its key rate any further.
However, according to Chair Jerome Powell, the central bank is working to rebalance its rate to a lower level that is more consistent with slower inflation. Furthermore, hiring has somewhat slowed recently, increasing the possibility that the economy could deteriorate in the months ahead. That risk might be mitigated by further rate reductions by the Fed.
Trump’s promise to slap sweeping taxes on U.S. imports, which economists think would likely raise inflation, is one potential challenge to the Fed’s efforts to control inflation. According to Trump, he might apply 60% tariffs on Chinese goods and 10% duties on all imports. Because of this, Goldman Sachs economists predict that by the end of 2025, core inflation will be 2.7%. They predict that it would fall to 2.4% in the absence of tariffs.
The Fed will reveal more than just its interest rate decision when its meeting concludes on Wednesday. Additionally, the policymakers will release their most recent quarterly forecasts for interest rates and the economy. They forecasted four rate decreases for 2025 in September. Next week, the officials will probably lower that number.
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