How the Fed Should Talk About Inflation
Does the central bank mean what it says about the path of interest rates?
It’s getting better.
Photographer: Michael M. Santiago/Getty Images
US inflation slowed again in December — with luck, bringing forward the point at which the Federal Reserve can safely stop raising interest rates. It’s good news, but it complicates one crucial aspect of the Fed’s job as the gap between what the central bank says it will do and what financial markets think it will do threatens to get wider.
Consumer prices actually fell last month, by 0.1%, compared with the month before, thanks mainly to lower energy costs. On a 12-month basis, inflation slowed from 7.1% in November to 6.5%. Core inflation, excluding food and energy, fell to 5.7%, the lowest in more than a year. Most notably, the prices of so-called core services, which the Fed is known to watch closely as a measure of underlying inflation, are also rising more slowly than before.