The Federal Reserve is approaching its inflation target of 2%, but high prices still impact individuals, businesses, and policymakers.
Recent reports show that inflation might soon be rounded down to 2%, but it varies widely and remains high for many essentials.
San Francisco Fed President Mary Daly acknowledged the progress but insisted the Fed isn’t declaring victory yet and must stay alert. She highlighted a conversation with a young man who questioned the Fed’s stance on inflation.
Inflation Isn’t Over
Daly explained that the Fed reduced interest rates by half a percent in September to align with current inflation rates, which, while improved from mid-2022, are still concerning.
The consumer price index (CPI) inflation stood at 2.4% in September, down from 9.1% in June 2022, but many prices remain high, particularly in food, housing, and insurance.
High Prices Force Borrowing
Despite inflation, American consumers are still spending, with consumer spending nearing $20 trillion annually. However, household debt has risen sharply to $20.2 trillion.
As debt delinquencies climb and worries about missing payments increase, Americans are turning to credit for everyday expenses. Small businesses are also using credit cards more than ever.
Fed’s Upcoming Decision
The Fed faces a crucial decision at its November meeting. While markets react to interest rate cuts, recent trends hint that borrowing costs are still rising.
Some analysts call for the Fed to pause rate cuts until inflation trends are clearer, warning that easing monetary policy may further fuel inflation.
In summary, while short-term inflation appears manageable, the long-term outlook is uncertain, leading to mixed sentiments among consumers and businesses alike.
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