The Fed is looking for softer labor-market conditions to rein in demand across the economy, especially after last week’s mostly solid jobs report. A separate report Thursday showed real earnings advanced 0.8% in December from a year earlier, extending a months-long streak in which wage growth has modestly outpaced inflation.
Toward the end of the year, US consumers grew more sanguine about the inflation outlook, with several metrics of near-term expectations declining to the lowest levels since early 2021. That’s helped lift measures of consumer sentiment.
However, it hasn’t been the same boon for Joe Biden. Despite the progress on easing price pressures, inflation has dogged Biden’s presidency, with his approval rating at similar level today as it was when the overall CPI peaked above 9% in June 2022.
Voters rank this issue, along with the broader economy, of high importance for this year’s election, but further softening in the jobs market could undercut the political benefits of slower inflation.
Looking ahead, inflation is expected to moderate further this year toward the Fed’s 2% target, especially as housing costs are seen easing. However, other factors like rising shipping costs due to attacks in the Red Sea and low water levels in the Panama Canal threaten to upend progress in goods deflation, while an escalation of the war in the Middle East — which could put upward pressure on oil prices — can’t be ruled out.
This article was provided by Bloomberg News.