Tamed Inflation

Two years ago, it seemed that the Federal Reserve’s target of 2% inflation for the U.S. economy was a mission impossible, and people were laughing at the Fed chairman’s comment that we were experiencing ‘transitory inflation.’ But it turns out that the 2020-2023 spike in inflation actually WAS transitory, even if it lasted longer than the Fed economists seem to have expected.

This is a long way of reporting that consumer prices rose 2.4% from September 2023 to September 2024—and the rate continues to fall. Of course, the individual components were all over the lot: shelter costs were up 4.9% for the year, and home prices rose 3.9%. Medical care was up 3.3%, and the cost of electricity rose 3.7%. The big counterbalance to these rises was a significant drop in gasoline prices (down 15.3%) and fuel oil (down 22.4%). Food at home prices (basically groceries) were up just 1.3%.

With the 2% target happening largely on its own in this benign economy, and unemployment rates still down around 4%, there seems to be no obstacle to the Fed raising interest rates again early next year, seeking out a ‘natural’ interest rate level which is what the market would generate on its own. That, too, is a moving target based on a number of exogenous factors, but the trends all seem to be moving in the right direction.