U.S. price increases are resurfacing - is the Federal Reserve decreasing its pace?
American inflation continues to be a thorn in the side, with figures in November showing a 2.7% year-on-year increase, up from 2.6% in October. On a monthly basis, the rise was 0.3%, marking the biggest increase in seven months. "The deceleration in US inflation has hit a wall," noted Commerzbank economists Christoph Walz and Bernd Weidensteiner in their analysis, implying that the Federal Reserve might slow down the pace of rate cuts soon.
In November, various consumer prices saw changes. Used cars witnessed a 2.7% monthly price hike, while airline tickets saw an unusually high increase as well. On the other hand, clothing saw a decline in price compared to October.
Although inflation rates are higher, economists anticipate the Federal Reserve to lower its key interest rate next week, to a range of 4.25% to 4.50%. However, the Fed's Open Market Committee may have concerns about the underlying inflation trend. The core rate, which excludes unstable energy and food prices, remained at 3.3% in November, far exceeding the central bank's goal of 2%.
Economist Bastian Hepperle of Hauck Aufhäuser Lampe Privatbank forecasts that lower inflation rates will emerge again in early 2025 due to base effects including core inflation. He points out that the discussion about whether the Fed should halt rate cuts is premature. Monetary policy remains stringent, and the Fed still has the potential to make further significant cuts in interest rates.
Another concern is the potential import tariffs proposed by the incoming US President Donald Trump, which might increase the costs of imports from Canada, Mexico, and China. Thomas Gitzel, chief economist of VP Bank, mentioned that these tariffs could bring about a new price dynamic.
The Federal Reserve's potential interest rate cuts might be reconsidered due to the persistent high core inflation rate, currently at 3.3%. Despite anticipations of lower inflation rates in early 2025, the proposed import tariffs could introduce a new price dynamic, potentially impacting the interest rate decision.
