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 core personal consumption expenditures (PCE) price index, its favored measure of inflation, cooled in November, signaling progress in controlling price pressures. The monthly core PCE index rose 0.1%, the slowest since May, while the annual rate held at 2.8%, below expectations of 2.9%.
Key Highlights
- Broad-Based Deceleration:Core services prices, excluding housing and energy, rose 0.2%, the slowest since August, while core goods prices fell for the first time in three months.
- Consumer Spending Resilience:Inflation-adjusted spending rose 0.3%, driven by strong goods purchases, including vehicles, though services spending showed the weakest growth since early 2024.
- Wage Growth:Wages and salaries increased 0.6%, the fastest since March, supporting consumer resilience during the holiday season. However, overall disposable income grew modestly at 0.3%.
Market Reaction
- Treasury Yields and Dollar: Fell after the report.
- Stock Futures: Pared losses, reflecting optimism about easing inflation pressures.
- Fed Rate Cut Projections: Traders priced in fewer than two quarter-point rate cuts by the end of 2025, aligning with the Fed’s cautious outlook.
Economic Context
This report comes after the Fed's December meeting, where officials signaled fewer rate cuts in 2025 due to persistent inflation concerns. San Francisco Fed President Mary Daly reiterated the Fed’s commitment to a gradual approach, emphasizing the importance of sustaining economic strength without reigniting price pressures.
Looking Ahead
While November's data reflects progress, economists warn that temporary factors, such as declines in financial services prices, may reverse in coming months. The Fed remains watchful, aiming for sustained progress toward its 2% inflation target without jeopardizing economic stability.
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