US inflation eases toward 2 percent target, but concerns remain

(MENAFN) Following reaching an ultimate of 5.6 percent annually over 30 months ago, in June 2022, US inflation has gradually moved closer to the 2 percent target in recent months. This marks a significant achievement for the US Federal Reserve (Fed) and has supported the start of the easing cycle in September 2024, when the Fed implemented its first policy rate cuts since the pandemic began in 2020, according to QNB's economic commentary.

Despite this success in controlling inflation, concerns over US consumer prices continue to dominate investors' minds. Recently, inflation figures have been higher than expected, and the prospect of a "Republican sweep" with a potential Trump presidential win, coupled with Republican control of both the Senate and the House, has raised concerns about the inflation outlook. Notably, the Fed’s key inflation measure, the core Personal Consumption Expenditure (PCE) index—which excludes volatile food and energy prices—remains above the target.

There are worries that the final phase of reducing inflation may be more challenging than initially thought. Additionally, the “America First 2.0” agenda could be inflationary, driven by fiscal expansion and increased tariffs on imported goods.

In fact, these concerns about higher inflation have led to a significant shift in expectations regarding the pace and scale of monetary easing by the Fed in 2025. Within just a few weeks, fixed-income investors have adjusted their outlook, lowering their forecast for policy cuts from 150 basis points to only 50 basis points, implying that the Fed Funds Rate could end 2025 at 4 percent instead of the previously expected 3 percent. 

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