Federal Reserve’s Preferred Inflation Index Slows Down
The Federal Reserve’s inflation index saw a rise of 5% over the course of the year, ending in December, indicating a slowdown from the previous month and a continuation of a six-month decline.
Upon removing the effects of food and fuel, the price index increased by 4.4% in comparison to the previous year, which is in line with economists’ projections in a Bloomberg survey and slower than the 4.7% increase observed in November.
The overall picture suggests a decrease in inflation, providing a welcome respite for consumers, yet it remains at an unusually high level, more than double the Fed’s desired rate of 2% over time.
Central bankers are increasing interest rates to make borrowing money for investments or business expansions more costly, with the goal of reducing demand and decreasing inflation. Last year, policymakers raised the main policy rate from near-zero to over 4.25 percent and it is widely predicted that they will raise it again by a quarter point on February 1.
The Federal Reserve is currently determining when to halt its rate increases and how long to maintain them at a high level, decisions that will be influenced by the incoming data on inflation and the broader economy. This highlights the significance of the figures released on Friday.
“Proper alignment and balance of supply and demand will take time to achieve, therefore, actions must be continued,” said John C. Williams, the President of the Federal Reserve Bank of New York last week.
The Federal Reserve is also observing various indicators of economic performance including consumer spending and the job market. Despite recent reports of layoffs at leading technology firms, unemployment claims remain low and the unemployment rate is currently at its lowest point in the past 50 years.
However, experts predict that this trend will change this year as the Fed’s interest rate increases take full effect. Economists from the central bank and Wall Street anticipate a slowdown in the US economy and an increase in unemployment. The officials aim to accomplish the slowdown without causing an economic recession, but there is no guarantee.