Inflation rises in December, Trump’s Fed threats raise questions about monetary policy future: CEI analysis

The CPI for December rose 0.3 percent, bringing year-over-year inflation up to 2.7 percent. While the report suggests monetary policy is unlikely to change soon, the president’s criminal investigation into Fed Chair Jerome Powell has raised questions on the future of Fed policy independence.

CEI Senior Economist Ryan Young:

“December’s inflation numbers got a lot less important when President Trump directly threatened the Federal Reserve’s independence over the weekend. While the criminal investigation into Charmain Powell will likely go nowhere, Trump added a lot of uncertainty to future Fed policy under its next chair.

“In the meantime, CPI continues to flout the Fed’s 2 percent inflation target. Lag times of six months or longer mean that any policy changes will be slow to take effect, but inflation may worsen in future months due to a combination of lower interest rates and a growing Fed balance sheet, plus presidential pressure.”

CEI Finance and Monetary Policy Analyst Steve Swedberg:

“December’s consumer prices showed a modest increase. November’s figures appeared unusually low because BLS data collection was interrupted during the federal government shutdown, forcing the BLS to rely on statistical estimates that understated actual changes instead of actual pricing data. As a result, the December figures likely reflect, at least in part, a statistical correction rather than an abrupt jump in consumer costs.

“Although the month-to-month CPI increase is modest, it matters because persistent inflation in key sectors such as housing, energy, and services continues to affect household budgets and business planning. The modest increase in December’s CPI, combined with recent employment data, is unlikely to prompt any change in the Federal Reserve’s current policy stance. Last month, Fed Chairman Jerome Powell clarified that he is more concerned with labor-market weakness than with modest changes in inflation. Meanwhile, the CPI data underscores that consumers and businesses are still navigating a challenging economic environment.”