The Fed wrapped up its work for 2024 with one final rate cut. Will there be heavy lifting required in 2025? The nation’s rate of inflation has plummeted from two years ago: 9.1% peak in 2022 vs. 2.7% now.
The current rate compares to levels from early 2021 when supply chain challenges, pandemic-related behavior alterations (consumers and businesses), and federal government aid were introduced into the economy.
Supply chain disruptions have largely dissipated, consumer/business adjustments have settled, but federal aid dollars have not completely worked their way through the system.
Consumer prices are 22.1% higher now than they were in February 2020 when the coronavirus began, according to a Bankrate analysis of Bureau of Labor Statistics data. The core inflation rate (excluding food and energy) has been stuck at 3.3% since August.
Is there any wonder why voters weren’t convinced that their finances were improving when they went to the election polls in November?
Bankrate looked at the items that have increased the most in price over the past 12 months (eggs have gone up the highest as producers struggle with bird flu). Insurance premiums have also jumped.
Inflation has remained “stubborn,” “sticky,” “slow-moving,” or however economists wish to describe its reluctance to fall faster as 2024 comes to an end. Food and shelter costs are primary drivers.
The conditions have been unique compared to recent times. When inflation peaked in 2022, it marked a 40-year high. When the Fed responded with a series of rate increases, the fiscal policymakers pushed borrowing costs to their highest in 23 years.
The Fed’s maneuvering may have avoided recession. But the combination of trillions in federal stimulus and higher interest rates still caused considerable financial struggle for some American consumers and producers.
RELATED: Washington, Iowa, financial lender Terry Engelken shared with American Farmland Owner how economic conditions challenged rural farmers. Find out what he said they are experiencing by listening to this conversation.
If President-elect Donald Trump follows through with significant tariff increases on targeted countries (China, Mexico, and Canada?) and begins the process of deporting millions of undocumented immigrants (an estimated 40% of agricultural workers are undocumented), that could bring significant pressures on inflation.
Costs on imported goods could surge. Prices on U.S. goods could also spike if producers lose large swaths of migrant workers to plant, pick, maintain, and harvest.
RELATED: Sizeable reductions in the federal workforce could affect the U.S. economy. Lonski Group President John Lonski told Fox Business that shrinking the number of federal workers could help the Fed’s efforts in 2025. Watch that interview here.
A CNN report pointed out a challenge that Fed officials encountered as some of their actions did not have the intended outcome that they hoped.
“Enter Powell’s failed bet: He and other Fed officials thought inflation would normalize shortly after picking up in mid-2021 as the US economy ascended from pandemic depths. That didn’t happen, and inflation kept shooting up,” the report stated.
Fuel costs surged, which impacted agricultural operations, and consumer sentiment tanked.
The Fed waited a year after its last rate hike before it began to slowly cut the federal funds rate. It ended up making three rate cuts in the year’s final four months.
CNN examined the successes and criticisms of the Fed’s actions and looked ahead to how Trump’s actions could complicate decision-making in 2025.
