Inflation and the U.S. Economy: A Recap of Recent Trends and Economic Impact
Inflation Drops to Lowest Level Since 2021
The closely watched measure of U.S. inflation has slipped to its lowest level since 2021, bringing it close to policymakers’ target after the Federal Reserve scrambled to bring down price growth. The personal consumption expenditures (PCE) price index rose at an annual rate of 2.1% last month, down from 2.2% in August and in line with economists’ expectations.
The Federal Reserve’s Role in Managing Inflation
The Federal Reserve initially underestimated the durability of inflation, referring to it as "transitory." However, they had an extraordinary U-turn, launching an aggressive campaign to tackle inflation. The central bank lifted interest rates to a two-decade high and only started to cut them last month to bring inflation down to its target of 2%.
Inflation and the US Presidential Election
The state of the world’s largest economy, particularly the cost of living, has been a central topic in the contest between Kamala Harris and Donald Trump to succeed Joe Biden. Inflation surged three years ago, peaking at its highest level in four decades as the impact of Covid-19 continued to affect the global economy.
Core Inflation and Economic Resilience
The so-called "core" PCE index, which strips out volatile food and energy costs, rose 2.7% in September, in line with recent months but slightly above economists’ expectations. While inflation has fallen dramatically, years of price increases continue to impact many Americans.
Economists agree that the economy has remained remarkably resilient despite these challenges. The U.S. economy continued to grow at a robust pace in the third quarter, according to data released on Wednesday.
Polling frustraites Inflation Impact Perception
However, nearly half of voters believe the U.S. is in recession, according to a Harris Poll conducted exclusively for the Guardian last month. Such polling frustrated Biden.
Economic Hiring Surges
As Trump has argued that America is in economic decline, the White House has sought to underline positive economic figures recently. Hiring unexpectedly accelerated in September, and data for October will be released on Friday.
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