The economy is ending the year on a high note, though inflation is proving sticky.
David Zalubowski|AP-File
Shoppers reach for items on display in a Costco warehouse, Nov. 19, 2024, in Lone Tree, Colo.
Inflation rose in October, as expected, but the increase heightens concerns about the stickiness of prices and the economic agenda of President-elect Donald Trump.
The personal consumption price expenditures index, a metric closely followed by the Federal Reserve, increased by 0.2% in October while the core index leaving out food and energy costs increased by 0.3%. On an annual basis, the index is running at 2.3%, while the core is now at 2.8%.
Both readings were in line with expectations, but the October number came in higher than September’s 2.1% rate. Although the consumer price index is the more widely known measure of prices, Fed Chairman Jerome Powell and other officials pay closer attention to the PCE.
In a separate report, third-quarter gross domestic product was 2.8%, unchanged from the prior estimate and in line with forecasts. And the National Association of Realtors said that sales of pending homes rose 2% in October, with all four regions of the country seeing gains.
“Net, net, the economy has built up a lot of steam and remains stronger than was commonly believed during the recent election with job layoffs minimal and GDP growth right up close to 3% which is probably the speed limit for now,” said Chris Rupkey, chief economist at fwdbonds.com.
The Fed lowered interest rates by a quarter point at its November meeting, but there was vigorous discussion about the move that followed a surprise 50 basis point cut in September, minutes from the meeting released on Tuesday showed.
While inflation has come down substantially from its high reached in the summer of 2022, it has not quite reached the 2% annual target set by the Fed and has been sticky for some items such as shelter costs and insurance.
Acknowledging that economic data had been good leading up to the meeting, some members of the Fed’s monetary policy committee “judged that downside risks to economic activity or the labor market had diminished,” the minutes said.
“Participants noted that monetary policy would need to balance the risks of easing policy too quickly, thereby possibly hindering further progress on inflation, with the risks of easing policy too slowly, thereby unduly weakening economic activity and employment,” the minutes added.
The minutes echoed comments made in speeches and other forums of late in which Fed officials indicated they were in no hurry to lower interest rates. While analysts still expect a cut at the upcoming December meeting, the odds of that happening have fallen in recent weeks.
Although Fed officials did not mention the November election in the minutes, the economic environment is shifting with Trump on Monday promising to impose 25% tariffs on imported goods from Canada and Mexico, with an additional 10% tariff on China as soon as he takes office on Jan. 20.
Trump cited the failure of the North American countries to impede immigrants coming into the U.S. illegally as well as what he termed China’s failure to curb inflows of the deadly synthetic opioid fentanyl into this country. Both Mexico and China indicated they were prepared to retaliate if the tariffs come to pass, while Canada said it was interested in talks with the U.S.
“We expect the Fed to slow the pace of rate cuts over the next 18-to-24 months as a result of several policies proposed by President-elect Donald Trump that may spark inflation, including tax cuts, higher tariffs, and lower immigration,” the investment firm Lazard wrote Tuesday in its “Fixed Income Viewpoints.”
On Tuesday, Trump filled in two more key positions of his incoming economic team, picking former Council of Economic Advisers chairman and longtime conservative economist Kevin Hassett to be the head of the National Economic Council. He also picked Jamieson Greer to be his U.S. trade representative. Greer was a former chief of staff to former trade czar Robert Lighthizer.
Tags: inflation, economy
