Fed's Preferred Inflation Measure to Recede Slower, Keeping Interest Rates Higher for Longer

According to Yahoo News, the Federal Reserve's preferred underlying inflation measure is expected to recede at a slower pace, resulting in higher interest rates for a longer period, as per Bloomberg's latest survey of economists. Forecasters have increased their projections for the annual core personal consumption expenditures (PCE) index, which excludes volatile food and energy categories, through the end of next year. The index is predicted to be at 2.5% by the end of 2024, up from 2.4% in the previous month's poll. Meanwhile, the overall PCE metric and the alternative consumer price index are anticipated to recede faster than previously thought through mid-2024, mainly due to a pullback in energy prices. Although recent reports show signs of easing price pressures, Fed officials have emphasized the need for sustained signs of cooling before declaring victory on inflation. Policymakers consider the core gauge as a better indicator of underlying price pressures. Economists still expect the Fed to begin loosening monetary policy in the second quarter of next year, but they now predict the central bank will maintain higher interest rates through the end of 2025. Kathy Bostjancic, chief economist at Nationwide Life Insurance Co., stated that the recent slowdown in inflation, employment growth, and consumer spending supports the belief that the Fed is done raising rates for this cycle. However, she added that the Fed will wait to cut rates until mid-2024, and the easing of policy will be gradual. Forecasters anticipate the economy to expand at an annualized 1.2% pace in the current quarter, up from 0.7% in the previous survey. Although stronger consumer and government spending are expected to aid the economy in the short term, economists now project a significant slowdown in private investment to dampen growth through early 2025. The job market remains broadly strong, but demand for workers is slowly starting to soften. Economists still expect the unemployment rate to peak at 4.4% but now see it taking longer to come down. They also predict the US will add fewer payrolls on average through 2025.