The Federal Reserve continues its fight against worsening inflation in the United States as the Fed decides to increase interest rates again.
This hike, however, is smaller than the previous increases imposed by the Feds. The lower rate could mean that inflation in the country is slowing down. However, a recent report showed that consumer prices are still higher than they were a year ago. According to the report, prices were up 7.1%, a far cry from the Fed’s goal of lowering it to 2%.
“It’s good to see progress, but let’s just understand we have a long ways to go to get better price stability,” added Fed Chairman Jerome Powell.
“The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.1 percent before seasonal adjustment,” said the report.
“The index for all items less food and energy rose 0.2 percent in November, its smallest increase since August 2021. The shelter index continued to increase, rising 0.6 percent over the month. The rent index rose 0.8 percent over the month, and the owners’ equivalent rent index rose 0.7 percent. The index for lodging away from home decreased 0.7 percent in November, after rising 4.9 percent in October,” it continued.
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Higher prices in the market
Meanwhile, Americans are aching with the increased prices of almost all items in the market. Many citizens pay more as interest, mortgage, and loans increase. However, the recent inflation rate dip sends a good sign to experts and individuals. For instance, gasoline prices dropped by 2% in October and November. However, it is a reverse story for grocery prices, as some items in the food market increased by 0.5% in November.
“I’ve never seen it like this. You can’t put lettuce on a hoagie and expect not to put an upcharge on it when you’re paying $100 for 24 heads of lettuce,” said Brian Guarino, a distributor.
“It is far too early to declare goods inflation vanquished. But if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months,” explained Powell.
“We see goods prices coming down. We understand what will happen with housing services. But the big story will be the rest of it, and there’s not much progress there. And that’s going to take some time,” he added.
Fed expects a tight job market
The cost of services has been steadily rising. And this is because of the higher labor costs. Workers demand higher wages because of higher prices in the market, which leads employers to seek ways to generate more income to provide salary increases for their essential workers. According to Powell, the job market is off balance as more openings exist than people available to apply for them.
“The labor market remains far too hot for the Fed’s liking. So the Fed has essentially said they need to see a cooler job market to help reduce those inflationary pressures,” said Wells Fargo.
“In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time.3 Thus, another condition we are looking for is restoring the balance between supply and demand in the labor market,” said Powell in a press release.
“Comparing the current labor force with the Congressional Budget Office’s pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3-1/2 million people,” he continued.
“Participation dropped sharply at the onset of the pandemic because of many factors, including sickness, caregiving, and fear of infection. As a result, many forecasters expected participation to move back up fairly quickly as the pandemic faded. And for workers in their prime working years, it mostly has. Overall participation, however, remains well below pre-pandemic trends.”
Mortgage rates drop
Meanwhile, mortgage rates dropped by a considerable margin, fueling demands in the housing market. But, according to experts, the Fed might not get involved with the development as lower mortgage rates would encourage participation from investors and home buyers.
“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” said MBA economist Joel Kan.
“A friendly enough Fed could easily break the range, but we have doubts about how much fuel the Fed will want to add to the fire. If anything, the Fed is more likely to try to temper the exuberance. Because the exuberance is counterproductive to the Fed’s goals,” added Matthew Graham, Mortgage Daily News chief operating officer.
“There are some very, very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” said the CEO of Toll Brothers, Doug Yearley.
“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods. Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release related to the Fed’s path to eventually bringing rates down,” added economist Taylor Marr from Redfin.
Photo Credit: Kevin Lamarque for Reuters