The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, showed prices increasing by 0.1% in November and 2.4% over the past year, according to data from the Commerce Department released on Friday.
Key Details
Re-Acceleration in Annual Rate:
- The 12-month increase of 2.4% in November marks a slight rise from October's 2.3% gain, highlighting the Fed's ongoing challenge in bringing inflation back to its 2% target.
Core Inflation Stable:
- Excluding food and energy, core PCE inflation rose 0.1% in November and remained steady at 2.8% annually, matching October's figure.
Below Forecasts:
- November's inflation numbers were softer than analysts’ expectations of a 0.2% monthly increase, offering a glimmer of relief for policymakers.
Impact on Federal Reserve Policy
Revised Inflation Outlook:
- The Fed now projects core PCE inflation to end 2024 at 2.8%, up from its September estimate of 2.6%, and 2.5% in 2025, revised higher from 2.2%.
Interest Rate Expectations:
- Reflecting slower progress on inflation, the Fed raised its median estimate for the target interest rate at the end of 2024 to 3.9%, up by 0.5 percentage points.
Outlook
The November inflation data underscores the Fed's cautious approach to easing monetary policy amid persistent inflationary pressures. While price growth fell below expectations, the central bank has signaled a less aggressive rate-cutting stance for the coming years, maintaining a focus on balancing inflation control with economic stability.
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