CPI Slowdown Lays Groundwork for Lower Fed Rate Hike, But Inflation Indicators Loom

November’s 0.1 percent increase in the Consumer Price Index, or CPI, gives the Federal Reserve the slow burn that it is looking for ahead of its next interest rate hike Wednesday, but wage growth, the high cost of housing, and persistent producer price indices show the Fed’s goal of 2 percent inflation is still an elusive target. The CPI includes the price of fuel, food, commodities, and services like transportation, housing, and medical care. Subtracting the volatile sectors of food and energy, which increased 13.1 percent and 10.6 percent respectively for the 12 months ending November, the price index rose 6.0 percent.The stock market rallied at the news that November’s 7.1 percent announcement was below forecasts of 7.3 percent and continues to drop from its 9.1 percent peak reached in June 2022. President Biden called the report “welcome news” that will give Americans “just a little bit of breathing room for the holidays.” But consumer advocates said household prices are still too high. “Consumers were told inflation would not be here to stay, and yet they’ve been left disappointed as they continued to struggle with surging prices from the grocery store to the gas pump,” said Will Hild, executive director of Consumers Research, the nation’s oldest consumers advocacy organization. The “gut punch for American consumers” will only be topped by another Federal Reserve interest rate hike, Mr. Hild said.Late last month, Federal Reserve Chairman Jerome Powell signaled that the four 0.75 percent rate hikes could be tempered this month as the pace of inflation slowed. A 0.5 percent hike would bring the adjusted rate close to the 4.6 percent that the Fed suggests could be the balancing point for the economy.Fed watchers say that efforts to ease off monetary tightening would be worse than the short-term pain of another hike. It would be like giving a hit to a drug addict. “The economy is addicted to easy money, artificially low interest rates, and money printing,” said Mike Maharrey, managing editor of Schiff Gold News. Monetary tightening by the Fed to slow the economy is working, he said, but “while it’s working, we’re only a small way into that process of getting it working.” He cited inflation as a direct result of the Fed’s efforts to keep the economy from stalling during the COVID-19 pandemic, at a cost of $5 trillion over a two-year period. “You’re not going to fix $5 trillion of stimulus with a few months of 4-5 percent interest rates. It’s just not enough,” he said. With a target inflation rate of 2 percent, the Fed is also burdened by the second mandate of achieving maximum employment. Mr. Biden said on Tuesday that 10.5 million new jobs, including 750,000 manufacturing jobs, have been added to payrolls since the start of his presidency 19 months ago.“Wages have gone up more than prices have gone up,” he added.Mr. Maharrey said those numbers are illusory but make for a good headline. Monthly jobs growth figures do not reveal the lower job participation rate. “The job market is hinky,” he said. The market is not gaining employees, “you just have more people trying to do more to make ends meet in a time of rising prices.” Though housing prices have begun to fall in conjunction with interest rate hikes, shelter is still one of the biggest contributors to the CPI. As a lagging indicator, a drop in the price of shelter in the next several months could signal a reverse in inflationary trends, in turn prompting the Fed to end its increases, and further delaying a correction.Will the Fed pivot or will it fight inflation? Mr. Maharrey predicts a troubling future. Like a drug addict crashing, “when they create a boom as big as they have, the bust is going to be as big as the boom,” he said.

CPI Slowdown Lays Groundwork for Lower Fed Rate Hike, But Inflation Indicators Loom

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