Fed Expected to Announce Rate Increase Today As New Inflation Numbers Show Moderation; CU Economists Respond

12/13/2022 CUToday

WASHINGTON–With the Federal Reserve expected to announce another rate increase today, new data show consumer prices rose last month at the slowest 12-month pace since December 2021, credit union economists are saying.

Dr. Dawit Kebede

According to the Labor Department, the consumer price index climbed 7.1% in November over one year earlier, down significantly from 7.7% in October and down even further from the June 2022 peak of 9.1%.

Core CPI, which excludes volatile energy and food prices was up just over 6% from a year ago, slightly better than the 6.3% gain in October.

The Federal Reserve’s Open Market Committee (FOMC) is wrapping up two days of meeting today with most analysts expecting a 50-basis-point bump in rates as the central bank continues its attempts to tame inflation. A half-point increase would bring rates to a range between 4.25% and 4.5%, the highest level since December 2007.

CUNA: ‘Going in Right Direction’

“Inflation slowed down in November as the price of gasoline, used cars, medical care, and air travel declined. Increases in food and housing prices slightly offset these decreases resulting in monthly price bump of one-tenth of a percentage point,” said CUNA Senior Economist Dawit Kebede. “The headline inflation declined in November to 7.1% from 7.7% in October over a 12-month period.  

“Most of the monthly increase in the consumer price index (CPI) comes from housing which is a lagged indicator. It takes over a year for the CPI to reflect current market trends,” Kebede continued. “Tight monetary policy which recently pushed mortgage rates very high led to home price declines in several places. However, it takes time for this current market trend to show up in the CPI. 

“The Federal Reserve is expected to increase the fed funds rate by 50 basis points…moving away from the aggressive consecutive increases in the last four meetings.  This CPI report shows that price trends are going in the right direction although inflation is still very high above target.” 

NAFCU: Should be a ‘Healthy Holidays’

"According to data released by the Bureau of Labor Statistics (BLS), headline inflation and core inflation moderated for a second consecutive month while remaining elevated above historic levels,” said NAFCU Economist Noah Yasif. “Headline CPI increased by 0.15 m/m in a marked deceleration from October’s reading, while also beating consensus estimates of 0.35 m/m. This decline was principally driven by lower energy prices, which contracted by 1.65 m/m, but offset by increased shelter and food costs, which increased by 0.65 m/m and 0.55 m/m respectively. Used vehicle prices, a major contributor to the initial inflation surge this year, also declined by 2.95 m/m.

“Against the backdrop of another, and final, FOMC meeting for 2022, November’s readings make these disinflationary trends harder to dismiss and provide grounding for the dovish faction of the FOMC to argue for a pause to rate hikes early next year,” Yasif continued. “These numbers also compliment recent readings of consumer sentiment, which are improving and which reflect less anxiety over inflation. Markets jumped on the news, and credit unions should anticipate a healthy holiday shopping season as households absorb the combination of a still-strong labor market, moderating inflation, rising investment values, and stable or falling borrowing rates."