US Inflation on the Decline
Core Rate Remains Persistently High - Fed Interest Rate Cuts Still Distant

The inflation rate in the United States continues to show signs of decline as falling energy prices dampened inflation to 3.1 percent in November. This is according to a report from the US Department of Labor presenting the latest consumer price data. Compared to the previous month of October, where inflation stood at 3.2 percent, there is a slight downward trend. This year-over-year decline is primarily attributed to the decreased energy prices, which were 5.4 percent lower in November 2023 than in the same period last year. In contrast, food prices rose by 2.9 percent, and housing costs even increased by 6.5 percent.
Economists are closely monitoring this development and expressing their opinions. Bastian Hepperle, an economist at the private bank Hauck Aufhäuser Lampe, emphasized that the decline in inflation remains a lengthy process. Particularly problematic is the fact that the core inflation rate, which excludes volatile energy and food prices, continues to linger at 4.0 percent. Since the US Federal Reserve pays special attention to this core rate, market expectations for interest rate cuts may be overly optimistic.
Some experts believe that Fed Chairman Jerome Powell could dash hopes of an early interest rate cut in the first quarter of 2024. The Federal Reserve has held its benchmark interest rate steady at a range of 5.25 to 5.50 percent in its last two consecutive meetings. While it is expected that the Fed will once again make no changes in the upcoming rate decision on Wednesday, the markets are predicting four rate cuts in the coming year. However, economists at Commerzbank, Christoph Balz and Bernd Weidensteiner, emphasize that an interest rate cut realistically appears to be possible only in mid-2024.
The development of inflation in the United States remains, therefore, a crucial factor for economic policy and Federal Reserve decisions. While falling energy prices provide temporary relief, the persistently high core inflation remains a challenge that financial markets and the central bank will continue to closely monitor.
