Slowing Inflation Could Intensify Fed Debate Over When to Stop Raising Rates
The Federal Reserve remains on track to lift interest rates by 0.5 percentage point on Wednesday to fight high inflation, but two straight months of moderating price pressures could complicate officials’ deliberations over how high to raise rates early next year.
Consumer prices climbed 0.1% in November from the previous month and 7.1% from a year earlier, the Labor Department said Tuesday, both down notably from comparable previous increases.
The Fed pays close attention to so-called core prices, which exclude volatile food and energy categories, as a better predictor of future inflation than overall inflation. Over the past three months, core prices increased at a 4.3% annualized rate, the lowest such reading in more than one year.
Fed officials began a two-day meeting in Washington on Tuesday, and they had strongly signaled their intention to raise their benchmark federal-funds rate by 0.5 point this week following larger increases of 0.75 point at their past four meetings. That would bring the fed-funds rate to a range between 4.25% and 4.5%, a 15-year high.
Tuesday’s inflation report is likely to intensify the officials’ debate over whether to further dial down the size of rate rises to a more traditional quarter percentage point at their subsequent gathering, Jan. 31-Feb. 1.
The Fed has raised interest rates at the fastest pace this year since the 1980s, and a consensus over how much higher to raise rates and how long to hold them at that yet-to-be-determined level is at risk of fraying amid uncertainty over the outlook for inflation and wages.
SHARE YOUR THOUGHTS
What do you think the November consumer-price index means for Federal Reserve interest-rate policy? Join the conversation below.
One camp of policy doves thinks high inflation is likely to continue slowing and wants to minimize potential job losses from high interest rates crimping economic activity. Another camp of policy hawks more readily embraces stiffer measures to fight inflation because they think it could settle at a level that is unacceptably above the Fed’s 2% inflation target.
Tuesday’s report isn’t likely to alter the Fed’s rate decision on Wednesday, said
Aneta Markowska,
chief economist at Jefferies LLC, who before the report anticipated the Fed to raise rates by 0.5 point, or 50 basis points, again in February.
“After this data, I could certainly see the dovish camp pushing more forcefully for slowing the pace of hikes to 25 basis points as quickly as possible,” she said.
Write to Nick Timiraos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
The Federal Reserve remains on track to lift interest rates by 0.5 percentage point on Wednesday to fight high inflation, but two straight months of moderating price pressures could complicate officials’ deliberations over how high to raise rates early next year.
Consumer prices climbed 0.1% in November from the previous month and 7.1% from a year earlier, the Labor Department said Tuesday, both down notably from comparable previous increases.
The Fed pays close attention to so-called core prices, which exclude volatile food and energy categories, as a better predictor of future inflation than overall inflation. Over the past three months, core prices increased at a 4.3% annualized rate, the lowest such reading in more than one year.
Fed officials began a two-day meeting in Washington on Tuesday, and they had strongly signaled their intention to raise their benchmark federal-funds rate by 0.5 point this week following larger increases of 0.75 point at their past four meetings. That would bring the fed-funds rate to a range between 4.25% and 4.5%, a 15-year high.
Tuesday’s inflation report is likely to intensify the officials’ debate over whether to further dial down the size of rate rises to a more traditional quarter percentage point at their subsequent gathering, Jan. 31-Feb. 1.
The Fed has raised interest rates at the fastest pace this year since the 1980s, and a consensus over how much higher to raise rates and how long to hold them at that yet-to-be-determined level is at risk of fraying amid uncertainty over the outlook for inflation and wages.
SHARE YOUR THOUGHTS
What do you think the November consumer-price index means for Federal Reserve interest-rate policy? Join the conversation below.
One camp of policy doves thinks high inflation is likely to continue slowing and wants to minimize potential job losses from high interest rates crimping economic activity. Another camp of policy hawks more readily embraces stiffer measures to fight inflation because they think it could settle at a level that is unacceptably above the Fed’s 2% inflation target.
Tuesday’s report isn’t likely to alter the Fed’s rate decision on Wednesday, said
Aneta Markowska,
chief economist at Jefferies LLC, who before the report anticipated the Fed to raise rates by 0.5 point, or 50 basis points, again in February.
“After this data, I could certainly see the dovish camp pushing more forcefully for slowing the pace of hikes to 25 basis points as quickly as possible,” she said.
Write to Nick Timiraos at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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