Inflation report could show another month of cooling prices.
Even more significant, a closely watched gauge of “core” prices — which excludes volatile energy and food costs — is expected to have risen just 0.3% from November to December and 5.7% from a year earlier. The Fed closely tracks core prices, which it sees as a more accurate indicator of future inflation, in setting its interest rate policies.
. Consumers have also shifted much of their spending away from physical goods and instead toward services, such as travel and entertainment. As a result, the cost of goods, including used cars, furniture and clothing, has dropped for two straight months. Such a scenario would mean slow growth and likely a small rise in unemployment but much less economic pain than a full-fledged recession.. Even after the Fed’s seven rate hikes last year and with inflation still high, employers added a solid 223,000 jobs in December, and the unemployment rate fell to 3.5%, matching the lowest level in 53 years.
Another positive sign for the Fed’s efforts to quell inflation is that Americans overall expect price increases to decline over the next few years. That is important because so-called “inflation expectations” can be self-fulfilling: If people expect prices to keep rising sharply, they will typically take steps, like demanding higher pay, that can perpetuate high inflation.
Futures prices show that investors expect the central bank to be less aggressive, and implement just two quarter-point hikes by March, leaving the Fed’s rate just below 5%. Investors also project the Fed will cut rates in November and December, according to the CME FedWatch Tool.
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