2025's economy is up in the air with inflation bumps
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Federal Reserve governor Christopher Waller. Photo: Al Drago/Bloomberg via Getty Images
The Fed looks on track to cut interest rates again when its leaders meet in two weeks. But after that, it's anybody's guess how much easing will come in 2025 given the latest inflation trends.
Why it matters: Inflation progress has nearly halted as other uncertainties about the economy, including the possible effects of the next administration's policies, pile up.
- Fed officials are sounding more nervous about renewed inflationary pressures than a labor market cooldown, in contrast to three months ago when they first cut interest rates.
What they're saying: In a speech Monday, Fed governor Christopher Waller delivered the vivid monetary policy metaphor of the month, comparing the more than two-year battle against inflation to the tiring sparring in a mixed martial arts cage.
- "I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out yet it keeps slipping out of my grasp at the last minute," Waller said at a conference hosted by the American Institute for Economic Research.
- "But let me assure you that submission is inevitable — inflation isn't getting out of the octagon," he added.
The big picture: Two key inflation reports for October — the Consumer Price Index and the Personal Consumption Expenditures Price Index — added to evidence that inflation was no longer on the steady downward trajectory as in months past.
- "After making a lot of progress over the past year and a half, the recent data indicate that progress may be stalling," Waller said.
- Waller added that it was "a risk but not a certainty" that inflation might get stuck above the Fed's 2% target. He pointed to similar inflation concerns last year that proved to be temporary.
The intrigue: As it stands, Waller said, he favors a rate cut at the Fed's Dec. 17-18 meeting.
- But that decision largely rests on "whether data that we will receive before then surprises to the upside and alters my forecast for the path of inflation," Waller said.
- Markets expect the same; Fed funds futures pointed to about a 69% chance of a rate cut late Tuesday morning, per the CME's FedWatch tool.
Between the lines: In a separate speech Monday, New York Fed president John Williams said there was reason to believe the disinflationary process would continue.
- If you strip out housing, food and energy costs, inflation rates are "roughly consistent" with those seen from 2002-2007, Williams said.
- He added that housing price pressures keeping inflation elevated should subside as more up-to-date data is folded into government reports.
What to watch: The October jobs report was muddled by hurricane and strike disruptions. Some of those effects may still weigh on the latest payrolls data to be released this Friday morning.
