11/28/2022 – Inflation and how to tackle it remain the western world’s dominant economic issue. The US Federal Reserve is determined to fight inflation by continuing to raise interest rates into next year, even risking a recession. However, the US inflation rate has been falling slightly for a few months now, raising hopes that inflation may have peaked or even passed. Meeting minutes of the US Federal Reserve point in the same direction, as they cite that this monetary authority could be slowing its pace of interest rate hikes. Falling prices for energy and raw materials, as well as an easing of supply chains and freight rates, are a sign that things are already cooling down – a precursor for falling inflation rates. Yet, a sharper slump in business activity was visible in the interest-sensitive construction sector, which has not only suffered from rising interest rates, but also from higher material and labor costs. On the other hand, the strength of the labor market and robust conditions of most firms point against a large economic slump.
Read more in the Macroeconomic Comment by Peter von Elten.