


Inflation dropped to 3.1% for the year ending in November, a welcome development as the Federal Reserve grapples to contain prices.
The updated to the consumer price index reported Tuesday by the Bureau of Labor Statistics is welcome news for President Joe Biden. The White House has been touting the declines in inflation alongside the strong labor market as “Bidenomics” at work.
It is also good news for the Fed, which has worked to drive down inflation since March 2022 by hiking interest rates as part of its historic tightening cycle. The decline further cements the general consensus that the Fed is done raising rates and will begin lowering them next year.
On a month-to-month basis, rose 0.1%.
SHADOW OF DOUBT: ARE TRUMP CANDIDATES CHANGING THEIR ELECTION DENIAL TUNE HEADING INTO 2024?
“Core inflation,” which doesn’t include volatile food and energy prices, was running at 4% for the year ending in October. Overall, core inflation has trended down this year in a sign that the Fed’s efforts are working.
The central bank’s target rate is sitting at 5.25% to 5.50%, with the Fed last raising rates back in July. The Fed has opted to keep rates steady since then as officials assess the various inflation, employment, and other economic reports.
Annual inflation peaked at about 9% in June 2022, and, while it is now much lower than it was, price growth is still running higher than the Fed’s preferred 2% level.
Inflation has been caused by factors on both the supply and demand sides of the equation. Republicans have placed blame on the rash of stimulus spending amid the pandemic coupled with ultra-low interest rates. Democrats have noted the role played by supply-chain problems and argued that inflation has increased in most Western countries and not just the U.S.
There has recently been a renewed sense of hope that the Fed will be able to pull off a “soft landing,” that is, a scenario in which inflation meaningfully falls back to a healthy level while the broader economy avoids a recession.
And other economic indicators are pushing back on the notion of a recession.
The labor market in particular has remained strong despite the high-interest rate environment. The economy once again beat expectations in November and added nearly 200,000 more jobs and unemployment rate dropped slightly to 3.7%, which is considered a healthy level by historical standards.
In addition to the ability for people who want jobs to get them, the overall economy has also expanded at a surprising rate over the past year in defiance of the high interest rates.
Gross domestic product growth is seen as the key indicator of recessions. Two quarters of negative GDP growth is typically used as a rule of thumb that the economy has entered a recession, but rather than slowing, the pace of GDP growth has picked up this year.
A revision to the third quarter GDP projections released last month showed that economic growth expanded at a 5.2% seasonally adjusted annual rate in the third quarter of this year, the strongest growth since the pandemic rebound and, before that, 2014.
Interest rates for mortgages and loans, while still quite elevated from pandemic-era levels, have begun moderating in recent weeks as investors bet that the Fed will begin chopping rates sooner than anticipated.
“The U.S. economy continues to chug along and is still headed for a soft landing,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “Interest rates have largely normalized, and markets are following suit. People are feeling better as they can get good jobs at good wages—and then go shopping. That is a good place to be as we enter the holiday season.”
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
But despite the underlying strength of the economy and jobs market, consumers are still reporting that the economy is in bad shape. Even though inflation has slowed, prices for everything from groceries to gasoline are still much higher than before the pandemic took hold, making life more unaffordable and translating into economic dissatisfaction.
The housing market has also taken a whack given that mortgage rates are still quite high and housing prices haven’t significantly dropped in tandem with the higher mortgage rates.