President Biden took a rosier view than financial markets, emphasizing the fall in gas prices and the strength of the overall economy.
“Today’s report shows that we have made progress on inflation, but we have more work to do,” he said in a statement. “January annual inflation is lower than the summer, while the unemployment rate has remained at or near a 50-year low and net wages have risen.”
Fed policymakers hiked rates last year at the fastest rate since the 1980s, raising them from near zero to over 4.5 percent. The goal was to curb consumer demand and force companies to charge fewer fees, ultimately reducing inflation.
There is evidence that these efforts are having an impact despite the hot start to 2023. The housing market has slowed sharply as mortgage rates have risen and manufacturers have also pulled back. Even consumer spending has slowed somewhat over several months from its rapid pace early in the recovery.
But what looked like a steady, albeit gradual, slowdown now looks even more gradual and not so steady. Personal spending, which fell slightly in November and December, rose 1.8 percent faster than inflation in January. Incomes were also up, which could help keep spending strong in the coming months.
The remarkable resilience of both consumers and the labor market suggests that, despite the dire predictions of many forecasters, the economy is in little imminent danger of slipping into recession. But it could also make it difficult for the economy to slow down enough for businesses to charge less and inflation to fully return to normal. That, in turn, could force the Fed to become even more aggressive — and increase the risk of a deeper recession later.
Officials signaled in December that they may eventually have to raise rates to just above 5 percent, but those estimates have edged up slightly in recent weeks as policymakers reacted to surprisingly strong jobs and spending data.
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