Are the Fed’s efforts to lower inflation stalling?
Are the Fed’s efforts to lower inflation stalling?
Each month, for the last three months, the consumer price index has increased 0.2%. And estimates for October’s report, which comes out on Wednesday, put it around the same level. If that comes to fruition, it means the Federal Reserve’s progress on getting inflation down to 2% may be stalling.
One month of weird inflation data is just one month. But Sean Snaith, who directs the University of Central Florida’s Institute for Economic Forecasting, said a few months is eyebrow-raising.
“This slowdown of progress towards the target rate has become more a feature over the course of this year than a statistical quirk,” he said.
He said a slowdown isn’t a terrible thing. But it’s not a good thing either. Which might have the Fed holding its breath.
Bill English, a former Fed official, said usually at Fed meetings we get an idea of what’s in store at the next one. But last week?
“You know, I don’t think we really did. They left the door open to either cut further or not,” he said.
The Fed seems to be uncertain about what it’ll do. Financial markets seem uncertain too.
And there’s the uncertainty a new presidential administration brings — new policies in Donald Trump’s second term could shift the job market or inflation itself, which might give the Fed reason to pause.
“They’re going to wait and see what the administration actually proposes and what gets through Congress and so on,” English said.
The other part of the Fed’s dual mandate — jobs — has been a little confusing too.
There are fewer openings and fewer people quitting, said Raghuram Rajan at the University of Chicago. “And that’s something that has the Fed convinced that we’re moving in the right direction,” he said.
Because it means wages are less likely to outpace inflation.
On the other hand, unemployment is low, consumer spending is strong. All good for the economy. But?
“It extends the period over which the Fed has to keep rates higher. In other words, while the Fed is cutting right now, it might have to cut at a slower pace,” Rajan said.
That’s to make sure inflation doesn’t stall, but keeps coming down.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
