The United States enters the election year with inflation at 3.4%. The rise in prices slowed in 2023, but it continues to be the main burden on the economic balance of the presidency of Joe Biden, who aspires to re-election in November. Inflation, with spikes like the one in December, is falling little by little, but prices are not and Americans realize this when they go shopping or receive bills. Although from a macroeconomic point of view, the Federal Reserve is close to achieving the feat of soft landing, controlling inflation without causing a recession, in the minds of citizens the feelings are negative.
Prices rose 0.3% in November, leaving annual inflation at the end of the year at 3.4%, compared to 7% in 2021 and 6.7% in 2022. Seeing the glass half full, the Inflation has halved in a year, while the unemployment rate has remained below 4%. Seeing it half empty, prices have risen 18% in Joe Biden's first three years in the White House. Americans see the glass (or pocket) half empty.
Inflation, in fact, has risen three tenths in December, from 3.1% in November, and shows its resistance to approaching the stability objective, set by the monetary authority at 2%. The good news, although discreet, comes from the point of view of core inflation, which is reduced by one tenth, to 3.9% year-on-year.
During 2023, energy has become cheaper (-2%), but food (2.7%) and services have continued to rise. Rentals, transportation, alcoholic beverages, cable television, car repairs and insurance are among the goods and services that are becoming sharply more expensive.
The inflation data comes at a time when the Federal Reserve is trying to confirm that it has already raised interest rates as much as it needed to prevent prices from going out of control. The idea of its president, Jerome Powell, is that he has already reached the destination, but that he is willing to go further if it turns out that inflation picks up again.
The debate has now moved to when the US central bank will begin to lower the price of money. In the last meeting of the monetary policy committee, its members anticipated a reduction in interest rates of 0.75 percentage points throughout this year, although at all times they have refused to specify what the pace will be. The minutes of the meeting also did not shed light on the issue, but rather confirmed the message that Powell had conveyed in his press conference: it will depend on the data. The announcement now removes any possibility of an immediate rate cut.
The United States enters the election year with an economy that has held up much better than expected. It has avoided the recession that was prophesied and continues to create jobs at a good pace despite the tightening of financial conditions. He said goodbye to 2023 with an unemployment rate of 3.7%, historically low. The Federal Reserve's forecasts point to it barely exceeding 4% this year.
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