Thursday, February 29, 2024

Low inflation in December is an ideal scenario for an economic soft landing

The Federal Reserve’s preferred inflation rate fell last month as the economy continued to grow, a trend sure to be celebrated in the White House, where President Joe Biden is seeking re-election on a campaign whose consequences may depend on its management of the economy.

A government report presented on Friday revealed that prices rose just 0.2% from November to December, at the same pace as pre-pandemic levels and more than the 2% the Fed had targeted, the same as last year.

Excluding volatile food and energy items, prices rose only 0.2% in the month. And compared to a year ago, so-called “core” prices rose 2.9% in December, the lowest increase since December 2021. Economists consider base prices to be a more accurate index of the likely inflationary trend.

The other day, government figures showed that the economy grew by an impressive 3.3% annually in the last quarter of 2023. Consumer spending is driving growth after a year that started broadly in anticipation of a recession. However, the economy grew by 2.5% in 2023, compared to 1.9% in 2022.

The Republican opposition sought to highlight what would be the highest increase in inflation in 40 years, largely attributed to the president’s budget measures. But with inflation falling after a long period of consumer pessimism, Americans are beginning to show signs of feeling better about the economy. The consumer confidence index prepared by the University of Michigan recorded the largest increase since 1991 in the last two months.

The latest data shows that the economy has reached a “soft landing,” that is, a reduction in inflation towards the Fed’s 2% goal without falling into the economy. This will allow the Fed to study lowering the reference interest rate, which it has raised 11 times since March 2022, to attack inflation. High-interest rates have stifled home and car sales by increasing the cost of borrowing.

World Nation News Desk
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