![]() ![]() ![]() The International Monetary Fund has forecast that the U.K. Inflation has reached 10.5% in the United Kingdom. The Bank of England is forecast to lift its rate at a meeting Thursday as well. Inflation in Europe, though slowing, remains high, at 8.5% in January compared with a year earlier. The European Central Bank is expected to raise its benchmark rate by a half-point when it meets Thursday. In addition to the Fed, other major central banks are fighting high inflation with their own rate hikes. The decline has been driven in part by cheaper gas, which has tumbled to $3.50 a gallon, on average, nationwide, from $5 in June. In December, overall inflation eased to 6.5% in December from a year earlier, down from a four-decade peak of 9.1% in June. While higher pay is good for workers, businesses typically pass their increased labor costs on to their customers by charging higher prices, thereby perpetuating inflation pressures. Powell said the report was encouraging but reflected wage growth that was still too fast. The Fed’s hike was announced a day after the government said pay and benefits for America’s workers grew more slowly in the final three months of 2022, the third straight slowdown. On the other hand, the nation’s job market – the most important pillar of the economy – remains strong, with the unemployment rate at a 53-year low at 3.5%. Manufacturing output has fallen for two months. Retail sales, for example, have fallen for two straight months, suggesting that consumers are becoming more cautious about spending. The risk is that with some sectors of the economy weakening, ever-higher borrowing costs could tip the economy into a downturn later this year. But inflation is still far above the central bank’s 2% target. inflation slowdown suggests that the Fed’s rate hikes have started to achieve their goal. “I still think there is a path to getting inflation down to 2%,” the Fed’s target level, “without a significant economic decline or significant increase in unemployment,” he said. On Wednesday, Powell brushed aside any concern that the Fed will end up tightening credit too much and trigger a recession. That suggested that lower rates might be drawing some home buyers back to the market. And while home sales fell further in December, a measure of signed contracts to buy homes actually rose. Yet since the fall, the average mortgage rate has eased to 6.13%, the lowest level since September. Eventually, it topped 7%, more than twice where it had stood before the hiking began. The average fixed rate on a 30-year mortgage soared after the Fed first began hiking rates. As a result, robust wage gains can keep services prices elevated and perpetuate high inflation. He has said he pays particular attention to services prices because they are labor-intensive. The Fed chair said that so far, much of the inflation slowdown reflects the prices of goods, notably gas but also furniture, appliances and other finished products that have benefited from an unraveling of supply chain snarls.īut Powell reiterated his concern that prices for services - restaurant meals, health care, airline tickets and the like - are still surging. In a statement, Fed officials repeated language they’ve used before, that “ongoing increases in the (interest rate) target range will be appropriate.” That is widely interpreted to mean they will raise their benchmark rate again when they next meet in March and perhaps in May as well. The Fed’s rate increase Wednesday, though smaller than its half-point hike in December and the four three-quarter-point hikes before that, will likely further raise the costs of many consumer and business loans and the risk of a recession. Yet he also stressed that it was too soon to declare victory over the worst inflation bout in four decades: “We will need substantially more evidence to be confident that inflation is on a long, sustained downward path.” “We can now say I think for the first time,” he said, “that the disinflationary process has started.” ![]()
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