Price Inflation Is Up Heading Into 2023, and the Fed Isn’t Happy

What a crucial week it was for the United States economy. The annual inflation rate showed further progress by easing to 7.1% in November, while the Federal Reserve raised interest rates by 50 basis points. But any celebration might be premature, as rampant price inflation and a higher fed funds rate are here to stay in 2023. In other words, to repeat what Fed Chair Jerome Powell told reporters in a post-Federal Open Market Committee (FOMC) policy meeting news conference, there is still a long way to go before the situation is resolved. In the meantime, there will be blood for millions of families nationwide.

Price Inflation – The November Edition

The consumer price index (CPI) was the lowest it has been since December 2021, coming in at 7.1% in November, according to the Bureau of Labor Statistics (BLS). The core inflation rate, which eliminates the volatile food and energy sectors, also eased to 6% last month. On a month-over-month basis, the CPI and core CPI rose just 0.1% and 0.2%, respectively. Overall, the cost-of-living crisis is gradually subsiding after peaking above 9% this past summer. Will it return to the Eccles Building's 2% target next year? It is improbable, although price inflation could come down at a notable pace based on various lagging indicators like rent and the deceleration of the Fed's money-supply growth.

The BLS published even more data on Dec. 14 that suggest short-term inflationary challenges should be diminishing. In November, import prices fell 0.6% month-over-month, and export prices tumbled 0.3%.

Fed Feels Restrictive

The Federal Reserve finished its two-day December FOMC policy meeting, lifting the benchmark federal funds rate (FFR) by 50 basis points to a target range of 4.25% and 4.5%. This is the highest level in 15 years. "The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time," the FOMC said in a statement. "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

The central bank also published its dot plot, a chart that indicates where Board members anticipate interest rates will be over the next few years. The median forecast suggested that the FFR will peak at 5.1% in 2023 and then slow to 4.1% in 2024, 3.1% in 2025, and 2.5% in the long run. According to the FOMC's Summary of Economic Projections (SEP), the GDP growth rate will run at an abysmal 0.5% in 2023, 1.6% in 2024, and 1.8% in 2025. Put simply, this is the Obama economy all over again!

Depending on one's vantage point, the Fed may have been hawkish or not hawkish enough since the spring. Whatever the case may be, the critical question is: Has the Fed reached restrictive territory – slowing the money supply's growth to decelerate the economy – yet? During his post-FOMC powwow with the press, Powell revealed that the central bank has not reached "a sufficiently restrictive policy stance yet." This means more rate hikes are coming in 2023, but the tightening might not emulate the three-quarter-point hikes of the last few months. Powell essentially summarized what the American people can expect over the next 12 months with these three comments: "So, we may have to raise rates higher to get to where we want to go." "It's not going to feel like a boom, it's going to feel like very slow growth." "We're heading into next year with #inflation higher than we thought.”

Inflation Reduction Act

Because price inflation is ostensibly cooling and the Fed’s expected date for a return to its 2% target is in 2025, does this mean the White House is putting the kibosh on the Inflation Reduction Act? This is about as likely as President Joe Biden remembering what he needed to buy at the supermarket. Despite its title and purported objectives, the legislation is more of a costly and inflationary subsidy for the green energy industry. As Liberty Nation noted, the trimmed-down Build Back Better agenda will hardly make a dent in inflation or the budget deficit.

What Does This Mean for Mom and Pop?

On several occasions this year, Powell warned that the public would experience tremendous pain from price inflation and policy tightening. When asked where the country is in this cycle of torment, Powell clarified that he meant "the largest amount of pain would come from a failure to raise rates high enough and from us allowing inflation to become entrenched in the economy." The torture has been real for the typical person, from renters who are about to renew their leases over the next several months to households that have resorted to credit to keep the lights on and the refrigerators full.

At this point, it is clear inflation is sticky and entrenched in the US economy, contrary to the official line from the monetary Leviathan. Grocery store prices have climbed to 12%, energy is still up more than 13%, consumer goods maintain their elevated status of 6%, and services are close to 7%. As a result, the real wage rate (inflation-adjusted) remained in sub-zero terrain for the 21st consecutive month. Unfortunately, there will be nothing to show for the country amid all the sacrifices of the last few years. Bidenomics will only mirror Obamanomics.