U.S. inflation will remain firmly elevated in the coming months, defying hopes of a rapid return to a typical rate. Economists indicate that persistent economic pressures, including rising housing expenses and wage increases, are going to keep inflation elevated, rendering the task for the Federal Reserve to stabilize prices more challenging.
Current figures show that inflation has been stronger than anticipated, with core inflation, excluding volatile food and energy prices, well above the 2% target of the Fed. Housing costs, a primary source of inflation, continue to rise due to high demand and tight supply. Meanwhile, wage growth, while beneficial to workers, is making service-sector prices rise as businesses transfer their labor costs to consumers.
“The stickiness of inflation is a concern,” said one economist. “While we’ve seen some moderation, the underlying pressures are still strong, and it’s going to take time to bring inflation down to target levels.”
The Federal Reserve has been raising interest rates aggressively since 2022 as a means to combat inflation, but the impacts have been disproportionate. While higher rates have trimmed demand in certain sectors, such as housing and durable goods, they have influenced services less due to the large share of the consumer spending represented by services.
Fed officials have acknowledged the challenges of taming inflation without triggering a recession. “We’re walking a fine line,” said one policymaker. “Our goal is to bring inflation down while maintaining economic growth, but it’s a delicate balance.”
The stickiness of inflation has also undermined confidence in the capacity of monetary policy to handle supply-side issues. The overwhelming majority of causes of inflation, such as worldwide supply chain disruptions and geopolitical strains, are beyond the Fed’s control.
Shoppers are trimming their budgets, with many struggling to keep up with the cost of staples like groceries, healthcare, and transport. “Everything costs more these days,” said one shopper. “It’s hard to keep up, especially when wages aren’t increasing quickly enough.”
Businesses, too, are struggling with the inflation. Rising input costs and stricter credit are squeezing some companies on profit margins, forcing them to cut back on hiring or spending. “It’s rough,” said the small business owner. “We’re trying to do our best to adapt, but it isn’t that easy.” However, despite the hardships, there appear to be glimmers of hope. Some supply chain bottlenecks have eased within the past months, and energy prices have stabilized, providing some relief to consumers and firms alike.
However, economists warned these improvements could come too slowly to quickly reverse high inflation. With the next Federal Reserve policy meeting fast approaching, all eyes are fixed on the ways it will take to manage inflation. Besides further increases in interest rates, other tools some policymakers are discussing to reach their aims include forward guidance and balance sheet management.
For now, the outlook is uncertain. “Inflation will likely be sticky in the near term,” one analyst predicted. “The road back to 2% will be long and bumpy.”
