WASHINGTON–New data showing a slowdown in consumer prices makes it increasingly likely the Fed not only won’t raise rates in December, but may even begin reducing rates in 2024, according to credit union economists and other analysts.
The Labor Department’s new Consumer Price Index data reveal consumer prices overall were flat in October and rose 3.2% from a year earlier.
So-called core prices, which exclude volatile food and energy items, rose a modest 0.2% in October from the prior month and increased 4% from a year earlier, the smallest annual change since September 2021, the Labor Department said.
“Overall prices remain unchanged in October relative to September. The headline inflation over the last 12 months increased by 3.2%, down from 3.7% the previous month,” said CUNA Senior Economist Dawit Kebede. “Core inflation – which excludes volatile food and energy items – increased by 4% over the previous year, the smallest increase in over two years.
The Main Drivers
“Price declines in energy, new and used vehicles are the main drivers for easing inflation in October. The increase in shelter price, which offsets these falling prices, returned to a normal monthly growth of 0.3% after jumping to 0.6% in September.
“The October inflation report is good news for the Federal Reserve determined to bring prices down to its 2% target,” Kebede continued. “Annualized core inflation is down to 2.8%; and core inflation less housing—a lagging indicator—is lower than 2%. A moderating labor market is also another indication that underlying prices pressures are easing. All these indicate that the Federal Reserve may not need further rate hikes to bring prices under control.”
Potential For Q2 Rate Cuts
Added NAFCU Economist Noah Yosif, “The October consumer price index came in below expectations. Energy was unsurprisingly a drag on prices last month, but the deceleration was broad. Service inflation has been more stubborn and was the driving force behind last month’s upside CPI surprise. But in October service price growth settled back into its pre-September range.
“With aggregate labor income slowing, there will be more confidence among Federal Reserve officials that price growth is on a sustainable path back to target,” Yosif continued. “NAFCU expects these conditions place the Federal Reserve on track to commence rate cuts in the second quarter of 2024, with an outside chance of earlier if unemployment continues to rise."
The Chicago Fed noted the 12-month inflation rate is on track this year to have posted its largest slowdown in at least four decades. However, many analysts are saying that bringing inflation all the way down to the Fed’s 2% goal may take longer than expected.
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