As Federal Reserve Chair Jerome Powell warned last week: It would be “premature” to say the central bank has raised rates high enough — or kept them elevated for long enough — to assure the rate of inflation will fall to its annual target of 2 percent. But almost two years after the Fed began raising rates to cool surging prices, a growing number of consumers and market participants — along with top economists — are a lot less worried about rebounding inflation. Few expect much drama when the Labor Department reports November’s consumer price index at 8:30 this morning, as the Fed’s open market committee kicks off its two-day meeting on monetary policy. “It’s constructive and encouraging that the sturm und drang around these inflation reports is dissipating,” Joe Brusuelas, the principal and chief economist for the consulting firm RSM US, told MM on Monday. “This is what you want from an economic and policy perspective.” Economists forecast the annual rate of inflation dipped to 3 percent, down from 3.2 percent in October. “Core” inflation, which excludes food and energy prices, is expected to remain flat at 4 percent. Any outcome that’s close to those projections will keep the Fed on a path to holding rates steady later this week, Dave Sekera, the chief U.S. market strategist at Morningstar, said in a research note on Monday afternoon. “I’m not all that concerned about CPI; I think it would have to come in a lot hotter than consensus for it to change the outlook for inflation,” Sekera wrote. Why does this matter?: This isn’t the first time Wall Street analysts and economists have been sanguine about the Fed’s battle with inflation. What’s unique now is the growing evidence that consumers have started to believe the hype. Wage growth has been outpacing inflation for months. President Joe Biden’s reelection chances could depend on it, and a mellow CPI print for November might help his case that the economy is on safer footing than public polling of his performance suggests. The Federal Reserve Bank of New York’s Center for Microeconomic Data’s November survey reported Monday that respondents now expect prices to climb by 3.4 percent next year — the lowest reading since April 2021. The University of Michigan’s consumer sentiment survey on Friday also found that inflation expectations have eased. The improvement has corresponded with a decline in gas prices — from $3.82 in early August to $3.15 as of Monday, according to AAA — that often improves consumer outlooks. Gas prices are volatile, however, and the recent improvements in consumer sentiment could reverse if conflicts or supply cuts cause prices at the pump to surge. But for now, “we’re now moving toward tolerable levels of inflation,” Brusuelas said. IT’S TUESDAY — This is probably my last Morning Money top until May so I can take advantage of POLITICO’s (generous) paternity leave. But don’t worry, you’re in good hands. And if you find yourself in New York City, I’m sure I can find time for coffee or a pint. As always, send tips and suggestions to me at ssutton@politico.com and to Zach at zwarmbrodt@politico.com.
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