US inflation is decelerating, boosting the economy. For the first time in over three and a half years, prices in the United States declined in November. This resulted in the annual increase in inflation falling even lower, below 3%, and it also boosted the expectations of the financial market regarding a reduction in interest rates from the Federal Reserve in March of next year.

In addition, the data released by the Department of Commerce on Friday demonstrated that fundamental inflationary pressures continue to decrease. The reduction in inflation has resulted in households having access to more money, contributing to the support of consumer spending and the economy as the year draws to a close.

Yet another data set demonstrated the enduring nature of economic growth, which can be attributed to the robustness of the labor market. From late 2022 onward, experts and confident corporate leaders have been making grim forecasts of a recession, but the economy has defied those projections.

Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, stated that “(Fed) Chair (Jerome) Powell could not have asked for a better present this year.” Guatieri is associated with the Federal Reserve. At least up to this point, the endgame is producing more favorable results than the Federal Reserve or almost anybody else could have anticipated at the beginning of the year. Even if the Federal Reserve won’t be in a hurry to lower interest rates, it’s probably only a matter of time now.

The Bureau of Economic Analysis of the United States Department of Commerce reported that the increase in inflation, as measured by the personal consumption expenditures (PCE) price index, decreased by 0.1% in the previous month. Following an unchanged reading in October, the PCE price index had its first monthly decrease since April 2020. This was the first time it had occurred since then.

The cost of food fell by a marginal 0.1%, while energy cost fell by 2.7%. After increasing by 2.9% in October, the PCE price index demonstrated a further increase of 2.6% in the twelve months leading up to November. From March 2021 until October 2021, the yearly PCE price index was below 3%. This was the first time that this had occurred.

According to a Reuters survey, economists predicted that the PCE price index would increase by 2.8% year over year while remaining unchanged for the month.

Considering the volatile food and energy components, the PCE price index increased by 0.1% in November, the same as the increase seen in October. Following an increase of 3.4% in October, the so-called core PCE price index increased by 3.2% year-on-year, marking the weakest increase the index has seen since April 2021. For its inflation objective of 2%, the Federal Reserve uses the PCE price measures as a guide.

According to a report the government released on Thursday, the core PCE inflation rate increased at an annualized rate of 2.0% during the third quarter. The six-month core PCE inflation rate was 1.9% due to this and the slight rise in November.

According to economists, consistent monthly inflation readings of 0.2% are necessary to return inflation to the Federal Reserve’s target level. The FedWatch Tool from CME Group indicates that the financial markets anticipated a rate cut during the Federal Reserve’s March 19–20 policy meeting.

Many people in the United States are experiencing an improvement in their mood due to the ongoing inflation. According to a different study by the University of Michigan published on Friday, consumer sentiment surged in December, erasing all declines in the previous four months.

Joe Biden, the Vice President, whose popularity has suffered due to dissatisfaction with the high cost of living, expressed his delight at the news. The hard work we undertook together to improve our supply chains and the surge of Americans into the workforce are reflected in this. It is “remarkable progress,” according to a statement by Biden.

Wall Street’s stock market was trading at a higher level. The value of the dollar decreased in comparison to a basket of currencies. The price of U.S. Treasury bonds went up.

AN INCREASE IN CONSUMER SPENDING

Last week, the Federal Reserve decided to maintain the current level of interest rates, and officials have indicated in fresh economic predictions that the unprecedented tightening of monetary policy that has been orchestrated for the past two years is coming to an end and that reduced borrowing costs are on the horizon for the year 2024. There has been a 525 basis point increase in the Federal Reserve’s policy rate since March 2022, bringing it to the current range of 5.25%–5.50%.

Even though the job market is still somewhat tight, earnings increased by 0.6% in the previous month. The drag on personal income from cuts to government assistance programs like food stamps, social security, and Medicaid was more than made up for by this increase. Individual income increased by 0.4%.

It is encouraging to see that the savings rate has increased to 4.1% over the previous month’s rate of 4.0%. Taking into account the effects of inflation and taxes, the amount of money that families have available to spend increased by 0.4%, following a rise of 0.3% in October.

At the beginning of the holiday shopping season, this made it possible for people in the United States to open their wallets. Spending by consumers, which accounts for more than two-thirds of economic activity in the United States, climbed by 0.2% in the most recent month, following a rise of 0.1% in October.

After showing a tiny gain of 0.1% in October, overall consumer expenditure saw a 0.3% increase when adjusted for inflation. This week’s statistics, which included single-family home starts and construction permits, contributed to the evidence that the economy was regaining pace after appearing to stumble at the beginning of the fourth quarter. So-called real consumer spending picked up, adding evidence that the economy was regaining speed.

The third report from the Census Bureau of the Commerce Department showed that orders for durable goods increased by 5.4% in November, recouping the 5.1% dip in October. This provided more evidence that this was the case.

Even though a fourth report from the Census Bureau revealed that new home sales dropped by 12.2% to a seasonally adjusted annual rate of 590,000 units in November, which was a one-year low, this decline is probably only transitory since insufficient previously owned houses are available for purchase. As mortgage rates continue to fall from their highest levels in 23 years, this should benefit the sales of new homes.

Estimates of the growth rate of the gross domestic product for the fourth quarter range from a rate of around 1.1% on an annualized basis to a rate of approximately 2.8%. The economy achieved a growth rate of 4.9% during the third quarter.

In his capacity as chief economist of PNC Financial in Pittsburgh, Pennsylvania, Gus Faucher stated that the economy of the United States is performing well moving into the year 2024. “No recession in 2024.”