Fresh inflation data released on Wednesday will give Federal Reserve officials one last glimpse at how their battle against rapid price increases is progressing before they head into their final policy meeting of the year.
Fed policymakers will decide whether or not to cut interest rates for a third and final time this year at their Dec. 17-18 gathering, and this report could be a critical factor as they make that choice.
Inflation has been cooling notably after peaking in the summer of 2022. But while progress had been proceeding steadily earlier this year, it has shown signs of stalling in recent months.
That makes the November inflation report important. Economists expect that Consumer Price Index inflation will increase slightly on an overall basis, speeding up to 2.7 percent from 2.6 percent previously. And after stripping out food and fuel costs, they expect “core” inflation to climb at the same pace as it did in October when measuring both month-over-month and year-over-year.
Fed officials have been clear that they are watching this report as they consider what comes next with interest rates. Policymakers are determined to drive inflation back to 2 percent, as measured by a different but related price index. Given that, the recent slow progress has caught their attention.
“Recent data have raised the possibility that progress on inflation may be stalling at a level meaningfully above 2 percent,” Christopher Waller, a Fed governor, said in a recent speech.
He said that “at present I lean toward supporting a cut to the policy rate at our December meeting,” but added that “that decision will depend on whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation.”
Fed officials lifted interest rates sharply in 2022 and 2023 in order to make it more expensive to borrow money, which helps to slow the economy. By restraining economic demand, they hoped to wrestle inflation lower.
They have been lowering borrowing costs in recent months because they also want to avoid cooling the economy so much that it plunges into a recession. Inflation is much lower than the 9.1 percent it reached in 2022, and the job market had showed signs of cooling notably — suggesting that it was time for the Fed to ease off the economic brakes.
Rates are now set to about 4.6 percent, which is well above the roughly 2.9 percent rate that officials think would be enough to keep the economy growing steadily and sustainably over time (often referred to as a “neutral” rate setting).
Given that, policymakers widely think that rates still need to come down further — but there are growing doubts about how much and how quickly. That’s because the job market has generally held up in recent months, and growth has remained faster than many economists had expected. And importantly, inflation has looked slightly sticky.
“Growth is definitely stronger than we thought, and inflation is coming a little higher,” Jerome H. Powell, the Fed chair, said at The New York Times’s DealBook Summit last week. “The good news is that we can afford to be a little more cautious as we try to find neutral.”
Investors mostly expected the Fed to cut interest rates this month in the days leading up to Wednesday’s report. But many investors expect rates to be slightly higher by the end of 2025 than Fed policymakers expected as recently as September, when they last released economic projections. Central bank officials will release a fresh set of policy projections after their meeting next week.
The post What to Know About the Latest Inflation Report appeared first on New York Times.
