From Fortune Magazine:

The Federal Reserve’s preferred inflation gauge cooled to 2.6% in December, a 0.2% monthly rise in prices, meeting the Fed’s 2% annual target. Solid consumer spending propelled a 3.3% annual pace growth, although Biden’s critics blame the largest inflation spike in 40 years on his spending policies. The economy grew 2.5% in 2023, and inflation began dropping last year. Fed’s sharp rate hikes are credited with cooling demand and slowing inflation.

The easing inflation data has led to a sharp increase in confidence among Americans on the economy. This allows the Fed to consider cutting its key interest rate soon to curb the inflation, as consumer sentiment has improved dramatically after the long period of gloomy outlook.

Rate cuts from the Fed could lead to lower borrowing costs for consumers and businesses, but would eventually boost inflation. This would give the Fed a leeway to cut rates this year, albeit carefully calibrated and not rushed, and investors might see an uptick next month in goods inflation from shipping disruptions.

The most recent consumer price index showed a higher inflation level at 3.4% in December, but the CPI shows higher inflation than the Fed’s preferred measure partly because of greater focus on housing and rents.
Inflation fell steadily in 2023 as recovery from pandemic-era disruptions helped slow wage growth. This led to inflation peaking at 7.1% in June 2022, but by December 2023, inflation eased, thus slowing wage growth.



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