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Will new inflation data put an end to Fed’s rate hike streak?

Report: Inflation fell to 3.2% in October, the lowest annual rate since June. Mounting data shows the U.S. economy may finally be entering a broader cool down

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Gas prices in the Salt Lake Valley on Nov. 14, 2023.

Gas prices in the Salt Lake Valley on Tuesday, Nov. 14, 2023.

Scott G Winterton, Deseret News

An unexpectedly robust decline in overall annual inflation in October paired with a downtick in core inflation may be all the data the Federal Reserve needs to finally call a halt to over 18 months of interest rate hikes aiming to quell consumer price increases.

Tuesday’s Consumer Price Index report from the U.S. Labor Department report finds October’s annual inflation moved down to 3.2%, the lowest year-over-year increase since June, from September’s 3.7% rate. Core inflation, a calculation that strips out volatile food and energy prices, eased to 4.0% in October from the 4.1% annual rate in September.

Annual inflation in October for Mountain West states, which include Utah, came in a bit lower than the national rate at 3.1%, bucking a trend over the last two years that’s seen inflation for the region running mostly well above the rest of the nation.

October declines in gas prices, down 5.3% from the same time last year, and the cost of used cars and trucks, which saw prices drop by 7.1% from October 2022, helped offset increases in the cost of shelter, up 6.7% from last year, and the price of food at restaurants, which was up 5.4% over the last 12 months.

Earlier this month, the Fed voted to hold its benchmark rate at 5.25%-5.5%, the highest in over two decades and the product of 11 interest rate hikes going back to March 2022. At a Nov. 1 press conference, Fed Chairman Jerome Powell signaled that the monetary body was ready to make another upward adjustment at its December meeting if necessary, but stressed that the decision would be based on the latest economic data.

“The process of getting inflation sustainably down to 2% has a long way to go,” Powell said.

Tuesday’s inflation report, along with a jobs report released earlier this month that found some cooling down of what has been a red-hot sector, should provide fuel for the Fed to delay another increase before the end of the year and may portend a halt to interest hikes in the near term.

Interest rate adjustments are the Fed’s primary weapon in an ongoing battle against the elevated prices of consumer goods and services and represents the monetary body’s most aggressive series of increases in decades.

The rate hikes aim to raise the cost of debt for businesses and consumers, which should, theoretically, reduce the amount of spending and overall economic activity, a shift in dynamics that typically brings inflation rates down.

The Fed has been targeting a “soft landing” for the U.S. economy, one in which interest rate hikes cool down inflation and ease labor market imbalances but without pushing the country into an economic recession.

“Things are proceeding in a way that is very consistent with what (the Fed) would want to see,” Eric Winograd, chief economist at AB Global, an asset management firm, told The Associated Press. “They look like they are on course to generate a soft landing. There’s no guarantee that they will actually manage to accomplish it. But right now, that’s the story that the data are telling.”