As the Fed votes to raise interest rates, it continues to fight against the worsening inflation in the US.
However, this increase is less than the prior ones the Fed imposed. The lower rate could indicate that the pace of inflation in the nation is decreasing. But as recent research revealed, consumer prices are still higher than twelve months ago. The data indicates prices increased by 7.1%, well above the Fed’s target rate reduction of 2%.
“It’s good to see progress, but let’s just understand we have a long ways to go to get better price stability,” added Fed Chairman Jerome Powell.
“The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the US Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.1 percent before seasonal adjustment,” said the report.
“The index for all items less food and energy rose 0.2 percent in November, its smallest increase since August 2021. The shelter index continued to increase, rising 0.6 percent over the month. The rent index rose 0.8 percent over the month, and the owners’ equivalent rent index rose 0.7 percent. The index for lodging away from home decreased 0.7 percent in November, after rising 4.9 percent in October,” it continued.
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Increased market prices
Americans are suffering due to the market’s nearly universal price increases. Many people pay more when interest, mortgages, and loans rise. To academics and regular people, however, the recent decline in inflation rates is encouraging. For instance, between October and November, the price of gasoline decreased by 2%. On the other hand, food market prices tell a different tale, with certain goods rising by 0.5% in November.
“I’ve never seen it like this. You can’t put lettuce on a hoagie and expect not to put an upcharge on it when you’re paying $100 for 24 heads of lettuce,” said Brian Guarino, a distributor.
“It is far too early to declare goods inflation vanquished. But if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months,” explained Powell.
“We see goods prices coming down. We understand what will happen with housing services. But the big story will be the rest of it, and there’s not much progress there. And that’s going to take some time,” he added.
A situation in the job market
Services are becoming more and more expensive. And the rising labor expenses are the reason for this. As a result of rising costs in the market and rising pay demands, companies are looking for methods to enhance revenue so they may raise compensation for their critical employees. Powell claims that there are more jobs than qualified applicants, which throws the labor market off balance.
“The labor market remains far too hot for the Fed’s liking. So the Fed has essentially said they need to see a cooler job market to help reduce those inflationary pressures,” said Wells Fargo.
“In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time.3 Thus, another condition we are looking for is restoring the balance between supply and demand in the labor market,” said Powell in a press release.
“Comparing the current labor force with the Congressional Budget Office’s pre-pandemic forecast of labor force growth reveals a current labor force shortfall of roughly 3-1/2 million people,” he continued.
“Participation dropped sharply at the onset of the pandemic because of many factors, including sickness, caregiving, and fear of infection. As a result, many forecasters expected participation to move back up fairly quickly as the pandemic faded. And for workers in their prime working years, it mostly has. Overall participation, however, remains well below pre-pandemic trends.”
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Mortgage rates dip
Mortgage rates also significantly decreased, which increased demand in the home market. However, analysts claim that the Fed may decide against engaging in the project since lower mortgage rates would stimulate involvement from investors and homebuyers.
“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” said MBA economist Joel Kan.
“A friendly enough Fed could easily break the range, but we have doubts about how much fuel the Fed will want to add to the fire. If anything, the Fed is more likely to try to temper the exuberance. Because the exuberance is counterproductive to the Fed’s goals,” added Matthew Graham, Mortgage Daily News chief operating officer.
“There are some very, very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” said the CEO of Toll Brothers, Doug Yearley.
“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods. Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release related to the Fed’s path to eventually bringing rates down,” added economist Taylor Marr from Redfin.
Photo Credit: Kevin Lamarque for Reuters