The Fed has closely monitored key inflation measures as they have continued their interest rate hikes. As a result of their interest rate hikes, we have seen impacts on economic indicators such as consumer spending and personal consumption. In December 2022, personal consumption expenditures, excluding food and energy, increased by 4.4% from a year ago. Monthly core PCE was in line with expectations increasing by 0.3%. Additionally, we saw a rise in personal income by 0.2%. However, we have a decline in real consumer spending by 0.3%.
In 2022 we saw an increase in interest rates from nearly 0% to a current target of 4.25%-4.5%. Going forward it is reasonable to believe that we can expect additional interest rate hikes to combat inflation. It is estimated that we can expect another quarter percentage point at the next Fed meeting. The goal of the Fed moving forward is to continue to manage high inflation by cooling the labor market and reducing supply and demand imbalances. It will be interesting to see how the Fed will proceed with its interest rate increases in 2023.
Article: https://www.cnbc.com/2023/01/27/pce-inflation-december-2022-.html
4 comments:
Do you think the Fed should further tighten the monetary policy to tackle inflation, which can result in low consumer spending and less money circulation? or the Fed should ease the policy?
It is interesting to see that along with these interest rate hikes, we have continued to see personal consumption expenditures rising. In theory, with interest rates rising we usually see a decrease in spending, as individuals are more inclined to save. Why do you think we have seen an increase in PCE but a decrease in CPI?
Overall great post!
I think that it is interesting to observe the FED's policies right now as they attempt to cool down rising inflation rates and hike up interest rates. I think it is vital for young adults to closely watch these policies because, in a lot of ways, we are one the generations that will be most financially affected by these decisions as we all begin to graduate and enter the workforce.
I really enjoyed reading this post. My topic was very similar in regards to the FED raising interest rates. I really love how you incorporated the economic indicators alongside with your details. I think we will definitely be seeing continued rise in interest rates as the FED continues to attempt to combat inflation. It is a challenging time for the FED as they are trying to lower inflation, but events like Covid restrictions being dropped in China, really reverse the progress and increase consumer demand for products like oil. Overall really great post!
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