5 takeaways from the front lines of the fight against inflation: NPR


Price tags are displayed in a New York supermarket on December 14. Inflation has eased recently, but more evidence is needed to show that price increases are moderating over the long term, Fed Chairman Powell said on Wednesday.

YUKI IWAMURA/AFP via Getty Images


hide caption

toggle caption

YUKI IWAMURA/AFP via Getty Images


Price tags are displayed in a New York supermarket on December 14. Inflation has eased recently, but more evidence is needed to show that price increases are moderating over the long term, Fed Chairman Powell said on Wednesday.

YUKI IWAMURA/AFP via Getty Images

Prices are still climbing much faster than Americans were used to before the pandemic, even though there are signs that the Federal Reserve’s dramatic moves to curb inflation may finally be working.

The central bank made it clear that it would do whatever it took to bring inflation down, and on Wednesday it raised interest rates for the seventh time in nine months.

Here are five takeaways from this week’s fight against inflation.

1. Inflation is down

After hitting a four-decade high of 9% in June, annual inflation fell to 7.1% last month, according to the government’s latest scoreboard. This is the lowest annual price increase in 11 months.

Gasoline prices have fallen sharply and are now lower than they were before Russia invaded Ukraine. Prices for other goods like used cars and televisions have fallen, as pandemic supply chain issues unravel. And travel-related prices for things like plane tickets and rental cars have plummeted as the pent-up demand that followed the shutdowns waned and travelers became more price-conscious.

2. Inflation is still too high

Although some prices have come down, the overall cost of living continues to rise much faster than it did before the pandemic. At 7.1%, November’s inflation rate is well above the Federal Reserve’s 2% target. This’s also more than three times the rate of inflation in February 2020 – before COVID-19 shut down the economy. The rising cost of services such as haircuts and restaurant meals is of particular concern, as it is largely driven by labor costs, which tend to be more rigid than volatile food and energy.

3. Interest rates are rising, but maybe not much more

The Federal Reserve has raised interest rates at the fastest rate in decades as it tries to reduce demand and rein in prices. Rising rates have made it more expensive for people to get mortgages or auto loans or carry over credit card balances. The central bank’s benchmark interest rate has fallen from near zero in March to just under 4.5% this week. But rates are now high enough to start to limit inflation, and the Fed has indicated that it cannot push them much higher. This week’s rate hike of half a percentage point was smaller than the past four. On average, Fed policymakers expect rates to peak next year at just over 5%.


Federal Reserve Board Chairman Jerome Powell answers questions during a press conference after a meeting of the Federal Open Market Committee on December 14. The Federal Reserve announced that it would raise interest rates by 0.5 percentage points to 4.5.

Alex Wong/Getty Images


hide caption

toggle caption

Alex Wong/Getty Images

4. Interest rates won’t drop any time soon

Just because the Fed has slowed the pace of rate hikes doesn’t mean borrowing costs will come down anytime soon.

“I wouldn’t see us considering rate cuts until the committee is confident inflation is down to 2% on a sustainable basis,” Fed Chairman Jerome Powell said Wednesday.

Fed policymakers expect no interest rate cuts in 2023, and seven of the 19 members of the Fed’s rate-setting committee think rates will be higher at the end of 2024 – in two years – than they are now.

5. There is still a lot of uncertainty about the direction the economy is taking

The central bank lowered its forecast for economic growth next year and raised its forecast for unemployment. But Powell says there is considerable uncertainty.

“I don’t think anyone knows whether we’re going to have a recession or not and if we do, whether it’s going to be deep or not,” he said Wednesday.

Climate change or the war in Ukraine could lead to large fluctuations in prices at the gas station and at the grocery store. Faster or slower economic growth around the world could also cause fluctuations in the price of crude oil and other commodities.

The price of services is highly dependent on what happens to salaries. This in turn depends on how many jobs the country adds each month, how many workers are available to fill those jobs, and how productive the workers are when they are employed.

Leave a Comment