Inflation remains at a high level: challenges for the Fed

The latest government survey on the Consumer Price Index (CPI) shows an annual inflation rate of 2.7% in November. This increase matched the predictions of economists surveyed by financial data firm FactSet. The Consumer Price Index, a basket of goods and services typically purchased by consumers, displays price changes over a specific period. The U.S. central bank, the Federal Reserve, has been combating high inflation since 2022 with a series of interest rate hikes to dampen consumer and business demand. These measures have reduced the inflation rate from a peak of 9.1% in June 2022 to the current level, but achieving the Fed's target of 2% remains challenging. According to Lisa Sturtevant, Chief Economist at Bright MLS, this is the second consecutive month in which the annual increase in the Consumer Price Index has risen. Prices rose by 0.3% between October and November. Since May 2023, wages have been rising faster than inflation, which is the main reason the persistently high inflation pressure has not curbed overall consumer spending. Nonetheless, many families suffer from high consumer prices. Research by the U.S. Census Bureau has found that middle-income families are under much more pressure from inflation than wealthier households. The Fed's approach could be complicated by the current rise in inflation, especially after the central bank cut interest rates in September and again in November. The reductions were based on progress in combating inflation and weaknesses in the labor market. The majority of economists still expect another Fed interest rate cut at the next meeting on December 18, but some forecasters are now expecting fewer rate cuts in 2025. Josh Hirt, Senior U.S. Economist at asset management firm Vanguard, confirmed that the recent rise in the Consumer Price Index strengthens market expectations of another 0.25 percentage point rate cut by the Federal Reserve. In addition to the headwinds facing the Fed, the economic plans of designated U.S. President Donald Trump contribute to the situation. Planned measures such as broad tariffs, tax cuts, and the deportation of millions of illegal immigrants are seen as inflationary by many economists. This could lead to a rise in the Consumer Price Index in 2025 if Trump implements his plans in the coming year.