What To Expect From Friday’s Report On Inflation | Global News Avenue

Not long ago, the Fed’s favorite inflation gauge looked very close to the central bank’s 2% annual interest rate target. But in November, it may have gone in the wrong direction.

A report from the U.S. Bureau of Economic Analysis on Friday is likely to show that the cost of living, as measured by personal consumption expenditures (PCE), rose 2.5% year over year in November, up from a 2.3% annual rate increase in October. a survey of economists Dow Jones Newswires and wall street journal.

This trend will reflect the rise in inflation seen on different measures, namely consumer price index, Published earlier this month. Federal Reserve officials are paying more attention to personal consumption spending in setting the nation’s monetary policy. As a result, Friday’s report is likely to have a greater impact on the trajectory of the central bank’s key interest rate, and thus on future borrowing costs for various loans.

Core inflation, which excludes fluctuations in food and energy prices, is likely to rise 2.9% for the full year, up from 2.8% in October and hitting its highest level since April. Policymakers are paying more attention to core data because food and gas prices can fluctuate for reasons unrelated to broader inflation trends.

Has the Fed’s progress on inflation stalled?

Inflation has been declining for much of the year, but progress has stalled in recent months. Rising inflation data could force Fed officials to keep interest rates higher for longer, which would also keep borrowing costs higher for credit cards, auto loans and other credit for longer.

The Federal Reserve has kept interest rates at two-decade highs for more than a year to push up borrowing costs, curb spending and combat inflation. Fed officials cut interest rates in September and November after a series of good inflation reports, and are expected to Cut again next week.

However, newly stubborn inflation is likely to result in interest rate cuts being few and far between next year.

“With the economy strong, downside risks to the labor market fading, and evidence that inflation is more troublesome than expected, the Fed will not rush into highly uncertain policies. neutral level“, Deutsche Bank analysts wrote on Monday.