Consumer spending cooled in November as closely watched inflation gauge slowed

The Federal Reserve’s preferred measure of inflation is showing signs of moderating after months of rapid price increases, and a closely watched gauge of consumer spending slowed last month, a sign the economy may have less momentum as 2023 approaches.

The personal consumption expenditures price index rose 5.5 percent in November from a year earlier, slowing from 6.1 percent in the previous reading. After stripping out food and fuel, which jump, the so-called core price measure rose 4.7 percent, down from 5 percent in the previous reading. Both figures were roughly in line with economists’ forecasts.

Although inflation is slowing, it still has a long way to go to return to a more normal pace. The Fed raised interest rates at the fastest pace in decades in 2022 to try to curb consumer and business demand, hoping to force price increases to moderate. These rate hikes are now trickling through the economy, slowing the housing market, cooling demand for new business investment and potentially weakening the labor market.

But it remains to be seen how much the Fed’s policy changes will slow down the broader economy. So far, spending and hiring have been relatively resilient, bringing new consumption data into focus.

“Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions,” Fed Chairman Jerome H. Powell said at his latest conference call press of the year

The economic report released Friday showed that consumer spending slowed in November, rising just 0.1 percent from October, less than the 0.2 percent economists had forecast. But spending in October was slightly revised up, registering a sharp increase of 0.9 percent, evidence that the trajectory of consumption is still difficult to control. These figures are not adjusted for inflation.

Still, the first signs of cooling consumer demand are likely to be welcome news in Washington. The economy slowed markedly in 2022 compared to its rapid pace of expansion in 2021, but Fed policymakers believe it must remain slower than usual over the coming year to regain momentum. inflation to the 2 percent target they seek on average for .time.

That’s because rapid inflation, which was originally triggered when pandemic-induced supply shortages clashed with strong consumer demand, has become more stubborn over time. It now covers a variety of service categories, from dentist visits to restaurant meals. These types of price gains tend to be fueled by rising wages and can take some time to clear.

That’s why the Fed is trying to slow down the economy, rebalancing the demand for workers with the supply of available workers. Under moderate conditions, policymakers think, wage gains will slow and inflation may return to normal, paving the way for more sustainable growth going forward.

But nailing that landing is sure to be tough. Officials will have to guess how high interest rates need to go and how long they need to stay there to slow the economy and price increases sufficiently. This is an inexact science, and there is a risk that officials will trigger a painful recession as they try to slow the economy.

As a result, Fed officials this month began moving rates at a more gradual pace and have hinted they may stop raising them altogether sometime in 2023. That will give them time to see how their policy changes are being developed so far. the economy

“It’s not so important now how fast we go. It’s much more important to think about what is the ultimate level?” Mr. Powell said in his latest press conference. “And then it’s: At a certain point, the question is going to become how long are we going to continue to be restrictive?”

Leave a Reply

Your email address will not be published. Required fields are marked *