Inflationary trends are not on our side
Regarding the Federal Reserve System, Interest rate cut to be tripled due to failure in September Next week will be the third consecutive decline in benchmarks.
The federal funds futures market currently suggests that: There is a 95% chance that the Fed will cut interest rates at its December meeting. Statements from the Federal Open Market Committee (FOMC). The 25 basis point rate cut brings the rate cut to 100 basis points in the second half of 2024, a significant easing of the monetary policy stance despite a strong labor market and persistent inflation.
The Labor Department released the latest statistics on consumer prices on Wednesday. this showed Consumer prices are rising at an astonishing rate of 3.8% per year November's annual rate increased significantly from October's pace of 3.0%. Core inflation also rose to an annual rate of 3.8% from 3.4% in October.
Note that we are annualizing the month-on-month numbers here. That's because the latest numbers highlight how far ahead the Fed's goals are, making the acceleration more evident. both Core and headline inflation rose 0.3% in the monthin line with the previous month's core numbers and above the previous reading of headline inflation at 0.2%.
“Inflation accelerated in November, indicating that the path to reducing price pressures remains difficult.” wall street journal I explained the numbers. But the truth is that inflation hasn't just proven to be “lumpy.” It has been on an upward trend since bottoming out in June. Inflation rates tend to rise every month.
This can be seen in a three-month annualized figure. The headline inflation rate rose 3% on a three-month annualized basis.up from 2.5 percent through October. Core inflation rose by 3.7% from 3.6%.
If you exclude evacuation from core inflation (which you really shouldn't do, but many analysts insist on doing so anyway), Prices are both up 3.5% on a 1-month and 3-month annualized basis. This is also accelerating compared to 2.4% and 2.7% up to October.
Inflation in core goods is back
Core goods prices (an indicator excluding food and energy) are no longer falling. new car price In November, it rose 0.6% from the previous month. used car price It rose 2% after rising 2.7% in October. Home furniture and supplies It rose by 0.7%. home appliances Prices also rose by 0.7%.
One of the most prominent baskets measured in the Consumer Price Index is food. Grocery prices rose 0.4% in Novemberthe previous month's inflation rate doubles. Food prices rose 0.5%, with four of the six major grocery store indexes up. This would overwhelm the kitchen table and would be unacceptable to American consumers.
So why does the Fed cut interest rates? Fed insists monetary policy stance remains restrictive And the neutral interest rate (the rate at which policy neither suppresses nor stimulates the economy) remains below current interest rates. But where is the evidence that the policy is restrictive?
All recent research data shows that The economy does not demand lower interest rates. Consumer sentiment is rising. Confidence among small and medium-sized businesses is soaring, with the outlook barometer registering its biggest rise on record. The New York Fed's Consumer Confidence Index showed a significant improvement in last year's forecasts in November. The proportion of households expecting their financial situation to improve in a year's time has risen to its highest level since February 2020. Confidence is back to where it was before the pandemic lockdown.
Donald Trump believes his proposed policy mix will stimulate non-inflationary growth by increasing investment in supply-side expansion, but the details remain unclear and the passage of legislation enacting much of Trump's plan remains unclear. is likely to take several months. There is no need for the Fed to rush to cut interest rates right now.And there is a big risk that inflation will continue to rise.
But the Fed showed that Strong reluctance to disappoint the market downwards. Therefore, expectations for a rate cut next week are almost certain to be confirmed. This is the third policy mistake in as many FOMC meetings.
