Annual inflation in the United States is showing signs of a slight uptick, indicating that price increases remain elevated despite a significant drop from levels seen two years ago. Economists predict that consumer prices rose by 2.7% in November compared to the same period last year, up from 2.6% in October. Excluding volatile food and energy costs, core prices are expected to have increased by 3.3% year-over-year.
These latest inflation figures are crucial as Federal Reserve officials prepare to convene next week to decide on interest rates. A moderate increase in inflation is unlikely to deter officials from considering a quarter-point rate cut.
The Federal Reserve has already reduced its benchmark rate by a half-point in September and an additional quarter-point in November, bringing the key rate down to 4.6% from a four-decade high of 5.3%. While inflation has significantly dropped from its peak of 9.1% in June 2022, prices remain notably higher than they were four years ago, contributing to public discontent.
Despite the current inflation levels, most economists anticipate a further decline towards the Fed's 2% target in the upcoming year. It is projected that prices rose by 0.3% from October to November, marking the most substantial increase since April. Core prices are also expected to have increased by 0.3% for the fourth consecutive month.
Fed officials have emphasized that inflation may fluctuate as it gradually moves towards the target level. The central bank aims to adjust its rate to align with lower inflation levels. While the U.S. economy has shown resilience with a 2.8% growth rate in the July-September quarter, some analysts suggest that additional rate cuts may not be necessary.
Chair Jerome Powell has indicated the Fed's intention to recalibrate the rate to a lower setting in line with subdued inflation. However, concerns about a potential economic slowdown have prompted discussions about further rate cuts to mitigate risks. One such risk is the possibility of increased inflation due to proposed tariffs on U.S. imports by President Trump.
Trump's tariff threats could lead to higher inflation rates, with projections indicating core inflation reaching 2.7% by the end of 2025 if tariffs are imposed. Without tariffs, the estimate suggests a drop to 2.4%.
Following the conclusion of the Fed's meeting, the policymakers will announce their interest rate decision and provide updated quarterly projections for the economy and interest rates. In their September projections, officials anticipated four rate cuts for 2025, a figure that is likely to be revised during the upcoming meeting.
