This week’s take on that is as follows: There are some positive developments to report, but there are still uncertainties and warnings ahead.
Indeed, inflation is declining.
Perhaps it would be more accurate to state that inflation is not boiling as much. According to Alicia Wallace’s article on HEADLINESFOREVER on Tuesday, the Consumer Price Index showed inflation was slowing down faster than many economists had anticipated.
According to the highly monitored index maintained by the Bureau of Labor Statistics, which tracks changes in the prices consumers pay for goods and services, prices increased 7.1% annually in November, down from 7.7% in October.
As a result, inflation has decreased from its peak of 9.1% in June of this year and has been slowing for five consecutive months.
Particularly, energy prices have decreased. Today’s gas prices are lower than they were a year ago.
But the Fed is not convinced
On Wednesday, the Federal Reserve announced that interest rates would increase by another half percentage point. The Federal Reserve also stated that it would not consider inflation to be under control until it consistently falls below 2% in a different index called Personal Consumption Expenditures.
That indicates that the Fed continues to support a weakening of the economy and somewhat higher unemployment rates.
Stocks fell on Wednesday as a result of the “Fed is not convinced” development after rising on the “inflation is dropping” news on Tuesday.
Jerome Powell, the head of the Federal Reserve, stated on Wednesday that there will be additional interest rate increases in 2023.
He said, “We still have a ways to go.”
Additionally, he stated that there would be no rate reductions in 2023.
“Historical precedent clearly advises against easing policy too soon. I wouldn’t say we’re thinking about lowering rates.
Read HEADLINESFOREVER’s updates on the latest Fed news as it happens.
More than anticipated, the economy is cooling.
The Fed made it apparent that rate increases are slowing the economy more than expected.
According to David Goldman of HEADLINESFOREVER, “after hiking rates to the highest level in 15 years, the Fed said Wednesday it anticipated US gross domestic product, the broadest gauge of America’s economy, would increase just half a percentage point in 2023.”
“Fed analysts previously predicted that the economy would grow by 1.2% in September. According to Fed experts, unemployment will increase again in 2019 and will reach 4.6% by the end of 2023 from the present rate of 3.7%.
However, this non-recession won’t be enjoyable.
The Fed contends that a downturn in the economy brought on by rate hikes is not technically a recession, according to Goldman.
“The technicalities of whether or not America is in a technical recession or not may not matter – especially to people who lose their job or corporations whose earnings are pinched,” he says.
According to Diane Swonk, chief economist at KPMG, the Fed will exercise caution because they grossly overestimated inflation earlier this year.
Before Wednesday’s rate hike was announced, she remarked on HEADLINESFOREVER, “They’re really mindful they’ve been humbled more often than they imagined by inflation reaccelerating for longer than they thought.” They don’t want the underlying inflation to spread, says the author.
A funding agreement for the government exists.
A simmering argument over spending will be postponed by the news that negotiators on the Hill have agreed a basic framework for a deal to fund the government for an entire year.
There’s still a lot to discover about this deal’s foundation, as well as what’s within.
According to Lauren Fox of HEADLINESFOREVER, even House Republicans may be pleased with this outcome. Kevin McCarthy, the head of the GOP, is attempting to gain enough support to become speaker; adding a spending dispute to his plate would be very ugly.
Even powerful Republicans like McCarthy understood that clearing the way now would make navigating the first few months of their House control much simpler, according to Fox. Democrats sought to take action now while they controlled the White House, the Senate, and the House, giving them the most negotiating clout possible. Continue reading the Fox report.
But a battle over spending looms.
The differences over spending aren’t going away at all. To appease conservative Republicans, McCarthy will have to adopt a tough posture, and it is anticipated that the GOP would use the debt ceiling and the prospect of a US government default to pressure Democrats into making expenditure cuts the next year.
Perceptions of a dismal economy may eventually materialise. The economy may be negatively impacted if and when the debt battle begins to undermine trust in the US government’s credit.
Election shifted due to inflation
When Americans are spending 49% more for eggs this year than they did last year, the difference between the monthly inflation rates of 7.1% and 7.7% may not seem like much on a micro level.
What rising interest rates imply for you is related.
The most crucial topic in the most recent election was inflation. Exit polls revealed that 31% of voters rated inflation as being more significant than any other issue in determining their vote. Republicans will take over the House on January 3 due of inflation.
The objectives may not be practical.
HEADLINESFOREVER’s Julia Horowitz writes Wednesday that the Fed’s mantra of seeking 2% inflation might be unattainable in an economy where supply chain issues persist, the worker population is aging and climate change is a wild card.
According to Mark Zandi, chief economist at Moody’s Analytics, “they were trying hard to drive inflation up in the decade following the financial crisis.” “They’re going to fight hard to get inflation down in the next decade.”
In the interim, officials might applaud declining inflation, but it might irritate the general public, particularly if a downturn in the economy turns into a recession. Such a view has the potential to influence elections going forward.