5.6 C
Washington

Inflation rose for a second straight month, endangering prospect of Fed rate cuts this summer

Date:

Share:



Consumer prices in the United States picked up last month, a sign that inflation remains a persistent challenge for the Federal Reserve and for President Joe Biden’s re-election campaign, both of which are counting on a steady easing of price pressures this year.

Prices rose 0.4% from January to February, a pickup from the previous month’s figure of 0.3%. Compared with 12 months earlier, consumer prices rose 3.2% last month, faster than January’s 3.1% annual pace.

Excluding volatile food and energy prices, so called “core” prices also climbed 0.4% from January to February, matching the previous month’s increase and a faster pace than is consistent with the Fed’s 2% target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed.

Voter perceptions of inflation are sure to occupy a central place in this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame Biden for the surge in consumer prices that began in 2021. Though inflationary pressures have significantly eased, average prices remain well above where they stood three years ago.

Overall inflation has plummeted from a peak of 9.1% in June 2022, though it’s now easing more slowly than it did last spring and summer. The prices of some goods, from appliances to furniture to used cars, are actually falling after clogged supply chains during the pandemic had sent prices soaring higher. There are more new cars on dealer lots and electronics on store shelves.

By contrast, prices for restaurant meals, car repairs, hospital care and other services are still rising faster than they did before the pandemic. Car insurance has shot, reflecting rising costs for auto repair and replacement. And after having sharply raised pay for nurses and other in-demand staff, hospitals are passing their higher wage costs on to patients in the form of higher prices.

Voter perceptions of inflation are sure to occupy a central place in this year’s presidential election. Despite a healthy job market and a record-high stock market, polls show that many Americans blame President Joe Biden for the surge in consumer prices that began in 2021. Though inflationary pressures have significantly eased, average prices remain about far above where they stood three years ago.

In his State of the Union speech last week, Biden highlighted steps he has taken to reduce costs, like capping the price of insulin for Medicare patients. The president also criticized many large companies for engaging in “price gouging” and so-called “shrinkflation,” in which a company shrinks the amount of product inside a package rather than raising the price.

“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said.

Fed Chair Jerome Powell signaled in congressional testimony last week that the central bank is getting closer to cutting rates. After meeting in January, Fed officials said in a statement that they needed “greater confidence” that inflation was steadily falling to their 2% target level. Since then, several of the Fed’s policymakers have said they believe prices will keep declining. One reason, they suggested, is that consumers are increasingly pushing back against higher prices by seeking out cheaper alternatives.

Most economists expect the Fed’s first rate cut to occur in June, though May is also possible. When the Fed cuts its benchmark rate, over time it reduces borrowing costs for mortgages, car loans, credit cards and business loans.

One factor that could keep inflation elevated is the still-healthy economy. Though most economists had expected a recession to occur last year, hiring and growth were strong and remain healthy. The economy expanded 2.5% last year and could grow at about the same pace in the first three months of this year, according to the Federal Reserve’s Atlanta branch.

Last week, the Labor Department said employers added a robust 275,000 jobs in February, the latest in a streak of solid hiring gains, and the unemployment rate stayed below 4% for the 25th straight month. That is the longest such streak since the 1960s.

Still, the unemployment rate rose from 3.7% to 3.9%, and wage growth slowed. Both trends could make the Fed feel more confident that the economy is cooling, which could help keep inflation falling and lead the central bank to begin cutting rates.

Subscribe to the new Fortune CEO Weekly Europe newsletter to get corner office insights on the biggest business stories in Europe. Sign up for free.



Source link

Subscribe to our magazine

━ more like this

NASA confirms 4-inch piece of space junk from International Space Station crashed into Florida man’s home

NASA confirmed Monday that a mystery object that crashed through the roof of a Florida home last month was a chunk of space junk from...

Trump’s social media stock has now fallen from $80 peak to $26.61 per share as it loses two-thirds of value

The stock price for Donald Trump’s social media company slid again Monday, pushing it more than 66% below its peak set late last...

American Airlines’ pilots union notes mounting safety issues—tools left in wheel wells, items abandoned near parked planes

The pilots union at American Airlines says there has been “a significant spike” in safety issues at the airline, including fewer routine aircraft...

MGM Resorts sues to halt probe that began after massive hack prompted a hotel clerk to ask the FTC chair for her credit card...

MGM Resorts International sued the Federal Trade Commission to stop an investigation into how it dealt with a cybersecurity attack last year.  The company...

Jamie Dimon cashes out more JPMorgan stock, bringing his total share sales this year to $183 million

JPMorgan Chase Chairman and CEO Jamie Dimon on Monday sold $32.8 million in the bank’s stock, bringing the total proceeds from shaving off...