Fed Seen Ending Rate Hikes by March as Inflation Slows Most in a Year

30 01 2023

It is expected that the Feds will raise the interest rates by 25-basis-point when meeting next week. The Feds will plan one more rate increase in Q1, ending rate hikes by March as inflation slows. A key measure of inflation climbed at its slowest pace in more than a year in December, a sign that the Federal Reserve’s efforts to rein in fast-rising prices are working. University of Michigan showed US inflation expectations continued to retreat in late January, helping boost consumer sentiment.

Key US Inflation Gauges Continue to Retreat
Key US Inflation Gauges Continue to Retreat

Personal spending, adjusted for changes in prices, dropped 0.3% in December. Inflation-adjusted outlays for merchandise fell 0.9%, while spending on services stagnated, the first month without an increase since January 2022.

The median estimates in a Bloomberg survey of economists were for a 0.3% advance in the core PCE price index and for no change in the overall measure on a monthly basis. The S&P 500 fluctuated as traders weighed corporate earnings while Treasury yields remained higher.

The figures added to mounting evidence that the worst bout of inflation in a generation has passed as the Fed’s aggressive tightening campaign works its way through the economy. Officials are widely expected to once again slow the pace of rate hikes, to a quarter point next week, and will discuss how much higher they need to go to ensure prices are cooling for good.

Policymakers are adamant that their work isn’t yet done, as a tight labor market threatens to keep upward pressure on wages and prices. They also point to price growth in services excluding energy and housing, which ticked up slightly to 0.32% last month, according to Bloomberg calculations.

The Fed’s hawkish stance has many economists worried the central bank will go too far, assigning a 65% chance of a recession over the next year. Several officials still maintain that a soft landing is possible, a scenario in which inflation cools without a surge in unemployment.

Americans, whose wages have lagged inflation throughout the pandemic, have been relying on credit cards and tapping into savings to support purchases. The saving rate rose to 3.4% in December, the biggest monthly increase since July 2021, the Commerce Department report showed.

The report showed a pullback in discretionary spending, particularly on categories like restaurants and hotel stays. On the goods side, purchases on apparel and footwear also dropped.

Personal income, unadjusted for inflation, as well as real disposable income, climbed 0.2% last month. Wages and salaries, unadjusted for prices, advanced 0.3% from November.

The Fed will get more data on the labor market next week, including the fourth-quarter employment cost index — a broad gauge of wages and benefits — as well as December job openings before the conclusion of its two-day meeting on Feb. 1. The January payrolls report will be released on Feb. 3.

Source: Bloomberg

If you have real estate questions or interested in buying or selling a home in Northeast Florida, please contact me at (904) 307-8998 or email williamvasana@kw.com. As a local area expert in Jacksonville Florida, I offer the highest level of professional services, luxury condo savvy, extensive residential experience, and intensive knowledge about Jacksonville neighborhoods and the overall market in the pre-construction and luxury development. I specialize in residential homescondominiumswaterfront properties and new construction homes in Duval, St. Johns and Clay counties.

William Vasana, Realtor

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