An inflation gauge closed watched by the Federal Reserve eased further in December, and consumer spending fell — evidence the Fed’s interest rate hikes are slowing the economy. Prices rose 5% from a year earlier, down from the 5.5% increase in November.
The Fed has been seeking to slow spending, growth and the surging prices that have bedeviled the nation for nearly two years. Its key rate, which affects many consumer and business loans, is now in a range of 4.25% to 4.5%, up from near zero last March. Though inflation has been decelerating, most economists say they think the Fed’s harsh medicine will tip the economy into a recession sometime this year.
, potentially until the end of the year. Yet that policy may become untenable if a sharp recession takes hold.Friday’s data may heighten concerns that the economy’s primary driver, the American consumer’s willingness to keep spending freely, is starting to crack under the weight of higher prices and interest rates.grew at a healthy clip in the final three months of last year
By contrast, consumer spending in the October-December quarter as a whole weakened from the previous quarter, and business investment dropped off sharply. Overall, the economy expanded at a 2.9% annual rate in the October-December quarter, down slightly from a 3.2% pace in the previous quarter.If consumers remain less willing to boost their spending, companies’ profit margins will shrink, and many may cut expenses. That trend could lead eventually to waves of layoffs.
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