The pace of inflation picked up in the final full month of Joe Biden’s presidency, capping off the worst burst of soaring consumer prices in forty years.
The personal consumption expenditures price index rose by 0.3 percent in December, an acceleration from the 0.1 percent increase in November. Over the course of 2024, the index—which is the Fed’s favored measure of inflation—rose 2.6 percent, still well-above the Fed’s two percent target.
After excluding volatile food and energy prices, “core” inflation rose 2.8 percent last year, including a 0.2 percent rise in December. In November, core inflation rose 0.1 percent.
The Federal Reserve indicated this month that wants to see more evidence that inflation is easing before cutting interest rate cuts again. Officials have said they want to see how Donald Trump’s economic policies—including tax cuts, deportations and border control, tariffs, and deregualtion—will effect the economy before they make further policy moves. Investors currently expect the Fed to cut one or two times this year.
Fed chairman Jerome Powell told reporters this week that officials were in a “mode of waiting to see what policies are enacted.”
The effect of tariffs may be central to the Fed’s policy decisions. Most economists expect some portion of tariffs imposed by the U.S. will be passed on to U.S. consumers, although how much remains to be seen. Fed Governor Chris Waller has said that while he thinks there may be some one-time price increases from new tariffs, he does not expect them to be a source of ongoing inflationary pressure.
If other countries raise their own tariffs on U.S. goods in retaliation to U.S. tariffs—despite the fact that tariffs on U.S. goods already tend to be higher than tariffs on goods imported into the U.S.—that could lower price pressure on goods for U.S. consumers.
U.S. manufacturers, as well as other businesses, have seen a surge in optimism following the election of Trump to the White House, in part because they anticipate tariffs will achieve better terms of trade. Tax cuts and a rollback of Biden-era regulation are also seen as likely to boost U.S. output and investment.
Polling shows that voters considered inflation one of the most important factors in election that ousted Democrats from the White House and took away their control of the U.S. Senate. President Trump has vowed to bring down inflation and indicated that encouraging more energy production will be an effective tool to accomplish this goal.
Read the full article here