© Reuters. FILE PHOTO: People look for presents at the Macy’s flagship store during the holiday season in New York City, U.S., December 10, 2023. REUTERS/Eduardo Munoz/File Photo
By Lucia Mutikani
Good news for the US economy as inflation takes a dip, giving a boost to the financial markets and raising expectations of a Federal Reserve interest rate cut in the coming months.
The Commerce Department’s report for November reveals that prices fell for the first time in over 3-1/2 years, pushing annual inflation below 3% and easing underlying inflation pressure. This is a positive sign for the economy as we approach the end of the year, with more disposable income for households, potentially supporting consumer spending and overall economic growth.
These latest numbers prove the resilience of the US economy, with a strong labor market standing firm against predictions of a recession made by experts and business leaders in late 2022.
“(Fed) Chair (Jerome) Powell couldn’t have asked for a better present this year,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “So far at least, the endgame is turning out better than the Fed or nearly anyone could have imagined at the start of the year. While the Fed won’t rush into cutting rates, it’s likely now just a matter of time.”
In November, the personal consumption expenditures (PCE) price index fell by 0.1%, the first drop since April 2020. Food and energy prices also saw declines, contributing to the annual PCE price index increase of 2.6%. Economists had forecasted a 2.8% year-on-year rise, making these figures a positive surprise for the market.
While there is still work to be done to meet the Fed’s 2% inflation target, the overall trend of subsiding inflation is creating a positive impact. Financial markets are already reflecting this optimism, with a 75% chance of a rate cut at the Fed’s March 19-20 policy meeting, according to CME Group’s FedWatch Tool.
In addition, a separate report from the University of Michigan shows a significant surge in consumer sentiment, indicating that the positive impact of decelerating inflation is resonating with the American public.Â
