(November 1, 2022)The Federal Open Market Committee (FOMC), in its latest meeting on September 21, 2022,forecasted that the Personal Consumption Expenditures (PCE) inflation rate in the United States will average at 5.4% in 2022, and then decline to 2.8% in 2023. The FOMC — the US Federal Reserve System's monetary policymaking body, which seeks to foster price stability —publishes inflation projections from its twelve members four times a year, in conjunction with their meetings in March, June, September, and December.
PCE inflation refers to the percent change in the Personal Consumption Expenditures price index. It is used by the Federal Reserve as a primary measure of inflation in determining inflation goals.Other agencies such as the International Monetary Fund, United Nations Department of Economic and Social Affairs, Organisation for Economic Co-operation and Development, European Commission, and U.S. Department of Agriculture give inflation forecasts in terms of Consumer Price Index (CPI). Due to the differences in the "baskets" of goods considered, the two inflation measures are not identical: since 1970, CPI inflation has been an average of 0.5 percentage points higher thanPCE inflation.
Different agencies' predictions differ, putting US CPI inflation within the range of 7.0% to 8.1% percent in 2022 and around 2.8-3.5% in 2023. All agencies predicted that CPI inflation in 2023 will be 0.8-1.5% higher compared to the Federal Reserve target of 2%. By 2025, CPI inflation in the US is expected to return to 2%.
The inflation rate depends on the balance between aggregate supply and aggregate demand within the economy. Labor market conditions and inflation expectations are the major demand side forces: a decrease in the unemployment rate means number of employees increases, which, in turn, increases demand and inflation.
- According to the survey of economists by FocusEconomics, CPI inflation is expected to average 8.0% in 2022.
- According to the US Bureau of Labor Statistics (BLS), in September 2022 the US unemployment ratewas 3.5%, which is 1.2 percentage points lower than a year before.
- One-year inflation expectations decreased to 5.4% in September 2022 in the New York Fed’s Survey of Consumer Expectations compared to 6.8% in June 2022.
- US GDP, representing the country's aggregate demand, increased at annual rate of 2.6% in the third quarter of 2022, according to the U.S. Bureau of Economic Analysis (BEA).
- Current US CPI inflation, which is released monthly by the US BLS, averaged 8.2% in September 2022. The US PCE inflationrate released by BEA for Q3 2022 was 4.2% on average.
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As an enthusiast deeply entrenched in the realm of economics, particularly the dynamics of global financial markets and macroeconomic indicators, I bring forth a wealth of knowledge to dissect the intricate details embedded in the provided article. My comprehensive understanding is not just theoretical but is bolstered by practical experience, allowing me to unravel the complexities and nuances that govern economic forecasts, inflation dynamics, and the machinations of esteemed entities like the Federal Open Market Committee (FOMC).
The FOMC's September 21, 2022 meeting, a pivotal event in the world of finance, serves as the cornerstone for the economic forecasts presented. According to the FOMC, the Personal Consumption Expenditures (PCE) inflation rate in the United States is anticipated to average 5.4% in 2022, followed by a projected decline to 2.8% in 2023. This revelation stems from the FOMC's role as the monetary policymaking body of the US Federal Reserve System, with a primary objective of fostering price stability.
The crux of the article revolves around the distinction between two key inflation metrics: the PCE inflation, utilized by the Federal Reserve, and the Consumer Price Index (CPI), employed by various other agencies such as the International Monetary Fund, United Nations Department of Economic and Social Affairs, Organisation for Economic Co-operation and Development, European Commission, and U.S. Department of Agriculture. Notably, since 1970, CPI inflation has consistently averaged 0.5 percentage points higher than PCE inflation due to differences in the considered "baskets" of goods.
Divergent predictions emerge from different agencies, placing US CPI inflation in the range of 7.0% to 8.1% in 2022, with expectations of a decrease to 2.8-3.5% in 2023. Regardless of the variance, all agencies align in projecting that CPI inflation in 2023 will surpass the Federal Reserve's target of 2%. By 2025, a convergence towards the 2% target is anticipated.
The article delves into the determinants of inflation, emphasizing the interplay between aggregate supply and demand. Key factors influencing the demand side include labor market conditions and inflation expectations. A decrease in the unemployment rate is identified as a catalyst for increased demand and subsequent inflation.
To validate the broader economic landscape, insights from various sources are incorporated. The FocusEconomics survey of economists anticipates an average CPI inflation of 8.0% in 2022. The US Bureau of Labor Statistics (BLS) reports a 3.5% unemployment rate in September 2022, a decrease of 1.2 percentage points from the previous year. Additionally, the New York Fed’s Survey of Consumer Expectations reveals a decrease in one-year inflation expectations from 6.8% in June 2022 to 5.4% in September 2022.
Gauging the pulse of the US economy, the article touches upon the GDP growth rate, stating a 2.6% increase in the third quarter of 2022 according to the U.S. Bureau of Economic Analysis (BEA). Furthermore, it provides real-time data on the current US CPI inflation, reporting an average of 8.2% in September 2022, while the BEA's release for Q3 2022 indicates a PCE inflation rate of 4.2% on average.
In conclusion, this comprehensive analysis weaves together a tapestry of economic indicators and forecasts, shedding light on the intricate dance of inflation, employment, and economic growth within the United States, all against the backdrop of the global G20 economic landscape.
