Recent Inflation Report Indicates The Fed Rate Hike Is To Blame

The data showed that inflation eased during December; this data could keep the Fed on track to reduce interest rate increases to a quarter of a percentage point at the meeting ending February 1.

According to the Labor Department’s report on Thursday, energy prices were lower, which indicated that consumer prices fell in December as reported on The Economist. During November, the consumer price index decreased by 0.1% from November. The index was up 6.5% on the year, down from a recent high of 9.1% in June.

WSJ Digital Subscription reported today that the core CPI index, which excludes volatile food and energy items, rose 0.3% from November, with the 12-month increase falling to 5.7% from 6.6% in September.

Fed officials said they would make a decision guided by the latest data on the state of the economy, keeping their options open on raising rates by a quarter of a percentage point or half a percentage point.

The improved inflation data suggests that officials consider increasing a quarter point or 25 basis points. It takes time for them to see the full effects of their policy actions, and they are trying to avoid causing unnecessary declines in jobs and growth.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, declared this Thursday morning: “In my view, increases of 25 basis points will be appropriate in the future.”

Before the start of the pandemic, officials had managed to keep rates close to zero for two years, but last year officials raised borrowing costs more aggressively than at any time since the early 1980s. They raised their most recent benchmark fed funds rate by half a percentage point in December, to a range between 4.25% and 4.5%, after four consecutive increases of 0.75 percentage points.