The Federal Reserve’s preferred inflation index rose 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.
After scrapping food and fuel, the price index rose 4.4 percent from a year earlier, in line with what economists had expected in a Bloomberg survey and a 4.7 percent slowdown in November.
The overall picture is one of moderating inflation—providing some long-awaited relief for consumers—but remaining unusually fast at more than twice the 2 percent the Fed is aiming for on average over time.
Central bankers raise interest rates to make it more expensive to borrow money to make a big investment or finance a business expansion, hoping to cool demand enough that price increases are lower. Policymakers raised their key policy rate from near zero to more than 4.25 percent last year, and are widely expected to raise it another quarter point in their February 1 decision.
The Fed decides when to stop rate hikes and how long to stay high. That draws attention to figures as released on Friday.
“It will take time for supply and demand to realign and balance, so we have to keep going,” John C. Williams, the president of the Federal Reserve Bank of New York, said last week.
The Fed also monitors measures of economic activity, including consumer spending and the labor market. While layoffs at major tech companies have made headlines in recent weeks, claims for unemployment benefits remain very low and the unemployment rate is at its lowest level in half a century.
That is expected to change this year. With the Fed’s rate hikes in full swing, economists at the central bank and on Wall Street expect the US economy to slow and unemployment to rise. Officials hope they can break the slowdown without sending the economy into a full-blown recession, but there’s no guarantee.