A woman walking past a mural depicting a U.S. drone painted on the outer walls of the former US embassy in Tehran. File
| Photo Credit: AFP

U.S. President Donald Trump delivers an address to the nation from the Diplomatic Reception Room of the White House in Washington, D.C., U.S., December 17, 2025.
| Photo Credit: Reuters

A divided U.S. Federal Reserve lowered interest rates on Wednesday (December 10, 2025) for a third consecutive time this year, but signaled that it could hold off further reductions in the coming months.

Fed Chair Jerome Powell said the central bank is “well positioned to wait and see how the economy evolves from here.”

The Fed’s statement on its decision also brought back language used in late-2024 to signal a pause in more rate cuts.

Mr. Powell stressed that officials are in a good position to determine the “extent and timing of additional adjustments based on the incoming data, the evolving outlook and the balance of risks.”

Wednesday’s (December 10, 2025) reduction by a quarter percentage point brings rates to a range between 3.50% and 3.75%, the lowest in around three years, a move aligned with market expectations.

The Fed penciled in one more rate cut next year, and flagged heightened risks to employment as it announced its latest decision.

But a rift within the central bank deepened with three officials voting against the modest reduction.

Chicago Fed president Austan Goolsbee joined Kansas City Fed president Jeffrey Schmid to support keeping rates unchanged. Fed Governor Stephen Miran again backed a bigger, half-percentage-point cut.

The Fed’s rate-setting committee has 12 voting members — including seven members of the board of governors, the New York Fed president and a rotation of reserve bank presidents — who take a majority vote in deciding on rates.

‘Close call’

Mr. Powell noted that some disagreement was expected, pointing to tensions between inflation risks and a weakening jobs market: “It’s a close call.”

“Inflation is well above the Fed’s target, but the job market appears to be softening,” said Mortgage Bankers Association chief economist Mike Fratantoni in a statement.

“Thus, there is ammunition for both sides of the debate” within the Fed, he added.

For now, Mr. Powell said, the Fed is “in the high end of the range of neutral” rates, with neutral being a level that neither stimulates nor restricts economic activity.

The Fed has previously described interest rates as “modestly restrictive” — “neutral” could suggest less justification to lower levels quickly.

“We expect the Fed will want to pause for a while to allow time to for this and prior cuts to feed through the economy,” said economist Ryan Sweet of Oxford Economics.

Mr. Powell added that the U.S. economy needs several years where wages are higher than inflation for “people to start feeling good about affordability.”

On Wednesday (December 10, 2025), Fed officials also lifted their 2026 growth forecast, while easing inflation expectations and keeping their unemployment rate projection unchanged.

These forecasts could shift as the central bank grapples with a delay in federal economic data releases after a record-long government shutdown.

Turbulent 2026

This week’s gathering is the last before 2026, a year of key changes for the bank. A new chief will arrive after Mr. Powell’s term ends in May, while political pressure mounts.

On Wednesday (December 10, 2025), Mr. Trump said the Fed could have “at least doubled” its rate cut.

The President also signaled in a Politico interview published on Tuesday (December 9, 2025) that he would judge Powell’s successor on whether they immediately slash rates.

Interviews for his choice are entering the final stages, and Mr. Trump’s chief economic adviser Kevin Hassett is among top contenders.

Miran’s term expires in January, creating an opening among the Fed’s top leadership. Mr. Trump has sought to free up another seat by attempting to fire Fed Governor Lisa Cook too.

Ms. Cook has challenged her ousting and the case remains before the courts.

EY-Parthenon chief economist Gregory Daco noted that Hassett’s potential appointment and a “more hawkish rotation of voting members” focused more on taming inflation means a growing dispersion in views.

“Policy deliberations are likely to become even more divided next year,” he said.

Published – December 11, 2025 09:44 am IST

U.S. Federal Reserve Chair Jerome Powell holds a press conference after the Fed cut interest rates by quarter of a percentage point, in Washington, D.C., U.S., October 29, 2025.
| Photo Credit: Reuters

Washington, United States:

Noting that more than 3,00,000 strong Indian student community contributes over USD 8 billion annually to the US economy and has helped create a number of direct and indirect jobs, Prime Minister Narendra Modi and US President Donald Trump have expressed their commitment to streamlining avenues for legal mobility of students and professionals, and facilitating short-term tourist and business travel.

The two leaders also expressed their commitment to aggressively addressing illegal immigration and human trafficking by taking strong action against bad actors, criminal facilitators, and illegal immigration networks to promote mutual security for both countries.

A joint statement issued after a bilateral meeting between PM Modi and President Trump said the leaders agreed to put in place conducive frameworks to encourage the formation of a global workplace.

“President Trump and Prime Minister Modi noted the importance of advancing the people-to-people ties between the two countries. In this context, they noted that the more than 300,000 strong Indian student community contributes over $8 billion annually to the US economy and helped create a number of direct and indirect jobs. They recognized that the talent flow and movement of students, researchers and employees, has mutually benefitted both countries,” the statement said.

“Recognizing the importance of international academic collaborations in fostering innovation, improving learning outcomes and development of a future-ready workforce, both leaders resolved to strengthen collaborations between the higher education institutions through efforts such as joint/dual degree and twinning programs, establishing joint Centers of Excellence, and setting up of offshore campuses of premier educational institutions of the US in India,” it added.

The leaders also committed to strengthening law enforcement cooperation to take decisive action against illegal immigration networks, organized crime syndicates, including narco-terrorists, human and arms traffickers, as well as other elements who threaten public and diplomatic safety and security, and the sovereignty and territorial integrity of both nations.

“Both leaders emphasized that the evolution of the world into a global workplace calls for putting in place innovative, mutually advantageous and secure mobility frameworks,” the release said.

“In this regard, the leaders committed to streamlining avenues for legal mobility of students and professionals, and facilitating short-term tourist and business travel, while also aggressively addressing illegal immigration and human trafficking by taking strong action against bad actors, criminal facilitators, and illegal immigration networks to promote mutual security for both countries,” it added.

President Trump and Prime Minister Modi pledged to sustain high-level engagement between the two governments, industries, and academic institutions and realize their ambitious vision for an enduring India-US partnership that advances the aspirations of people of the two countries “for a bright and prosperous future, serves the global good, and contributes to a free and open Indo-Pacific”.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

President Donald Trump’s immigration policies would likely have devastating effects on Corporate America’s growth and earnings, but investors haven’t been perturbed yet – largely because they don’t believe he’ll follow through on the full extent of his plans.

It’s a gamble that would be costly to lose, strategists and analysts say, with mass deportations likely upending industries as varied as service-heavy hospitality and leisure, and labor-intensive agriculture, food production, manufacturing and construction.

While the Trump administration declared a national emergency at the southern border and started sending deportees back to Central America, it has so far held off on mass deportations and large-scale workplace raids.

There were signs of relief of Wall Street not dissimilar to the broad advance in the S&P 500 spurred by softer-than-expected moves on tariffs. Restaurant operator Yum! Brands Inc. rallied 2.4% in Trump’s first week, paring its January loss. Building materials maker Owens Corning jumped 3%, while hotel and resort operators suffered minor declines.

The bet distills to relying on Trump’s use of the stock market as his scorecard and that he’ll avoid policies that hamper economic growth and weigh on share prices. In short, traders and investors don’t think Trump will actually go all the way despite the policy having broad support from voters.

“People forget very quickly that often there is a lot more talk than actual execution, especially with mid-term elections coming up in 20 months,” said Todd Ahlsten, chief investment officer for Parnassus Investments. “So we do not want to over-extrapolate what could be a short-term blip and get it wrong.”

Aside from Trump’s penchant to overpromise on broad policies, investors betting on a tamer approach to deportation point to the likelihood that many of the actions will be tested in the courts and face funding challenges as he tries to cut federal spending.  

And while deporting one million to two million people per year is feasible, according to estimates by Jefferies LLC strategists, that’s a far cry from rapidly removing the 11 million undocumented people estimated to live in the US.

The risk to his following through is immense. Trump’s full proposals would trigger shockwaves throughout the economy, according to strategists, economists and Wall Street pros. Inflation would soar and labor-intensive industries such as agriculture and construction would struggle to find workers. Returning the country’s entire population of undocumented immigrants will reduce America’s gross domestic product by 8%, an analysis from Bloomberg Economics found.

“If we are talking about a rapid deportation of 10 million people, I think it is fair to say that while the impact would not be on the same scale as the pandemic era, it could be close,” said Mark Malek, chief investment officer at Siebert. “This all could have a painful impact on employment, inflation, and the economy.”

Disruption Risk

Investors worried about the Trump deportation plans will be focusing on shaers of companies that own hotel properties and fast-food restaurants, along with producers of food and building products – all industries that rely on low-skill labor.

There are signs of stress in the hospitality sector. Host Hotels & Resorts Inc., Park Hotels & Resorts Inc., Xenia Hotels & Resorts Inc., Sunstone Hotel Investors Inc. and Ryman Hospitality Properties Inc. have all stumbled so far this  year, and saw only a little relief during Trump’s first week in office.

They, along with meat processors like Tyson Foods Inc., wil get a squeeze from higher labor costs, especially California, Texas and Florida. Jefferies strategists found that the loss of about one million production workers would lead to five months of disruptions and a roughly 8% increase in wages in the meat-processing industry.

Tyson shares have slumped on worries about avian flu, though the stock advanced 1.5% in the past two sessions.

Restaurant operators in the S&P 500, facing the prospect of higher wages and food costs if deportations increase, jumped nearly 2% in the week after stumbling to start 2025. Investors will be focused on earnings commentary from the likes of Jack in the Box Inc., McDonald’s Corp., Restaurant Brands International Inc., Wendy’s Co., Domino’s Pizza Inc. and Papa John’s International Inc. to gauge the level of concern among executives.

Companies exposed to construction – from home-improvement retailers Home Depot Inc. and Lowe’s Cos Inc., to services and materials providers like TopBuild Corp., Installed Building Products Inc., Owens Corning, Beacon Roofing Supply Inc. and Builders FirstSource Inc. – could see disruptions as well. In markets such as Texas, California and Florida, over 45% of construction workers are immigrants, according to data from Jefferies.    

Big Tech won’t be spared either, as the new administration also plans to restrict work visas for highly-skilled foreigners through the H-1B program. Information-technology outsourcing firm Cognizant Technology Solutions Corp., and major tech behemoths Amazon.com Inc., Meta Platforms Inc., Alphabet Inc., Microsoft Corp. and IBM all have significant exposure to the visa program, Jefferies strategists said. However, they expect only a minimal impact to profitability unless there are “wholesale changes” to the H-1B visa.    

Trump’s plans on immigration come at a time when investors are still wrestling with the delicate balance between a resilient economy and a stubborn inflation. The S&P 500’s latest rally was triggered by a cooler-than-expected inflation print in mid-January.

Anything that derails this progress will have a domino effect on equity prices and bond yields.

“Eventually the issue is how much of a supply shock is this for the labor market,” said Alicia Levine, head of investment strategy and equities at BNY Wealth. “It may eventually be more inflationary than tariffs because it’s immediate.”

Despite these risks, investors are largely positioning for immigration issues with the same strategy they’re using for tariffs. The idea is to focus on what actually gets done, not be swayed by what Trump threatens, and closely monitor the sectors that are bound to get caught in the crosshairs.

“I think the actual immigration actions will be modest,” said Brad Conger, chief investment officer at Hirtle Callaghan. “I cannot imagine a situation where the deportation and other moves will be so severe that I will have to change my investments.”

Representative image.
| Photo Credit: AP

Kamala Harris blasted Donald Trump as the “biggest loser” on the economy and a friend of billionaires Wednesday as the election rivals laid out competing plans on the top issue for many US voters.

In a speech on the economy and then again in her first major solo interview, the Democrat warned that Mr. Trump’s plans to bring back huge tariffs on foreign imports would hurt middle class Americans in their wallets.

Republican Trump for his part doubled down on his protectionist vision — but spent as much time on threatening to blow Iran to “smithereens” after US intelligence warned of threats from Tehran against his life.

The vice president and the former president are neck-and-neck in the polls and are both reaching out to undecided voters on key issues like the economy with less than six weeks until election day.

Ms. Harris vowed to “chart a new way forward” in a speech in Pittsburgh, an industrial city in the critical swing state of Pennsylvania, with her rhetoric focusing on lowering prices for Americans.

“For Donald Trump, our economy works best if it works for those who own the big skyscrapers. Not those who actually build them. Not those who wire them. Not those who mop the floors,” she said.

She said nearly 200,000 factory jobs moved abroad during Trump’s time in the White House, “making Trump one of the biggest losers ever on manufacturing.”

In her interview with the left-leaning MSNBC, Ms. Harris then criticized the tariff plans that Mr. Trump has laid out over the past two days, which would be a return to the policies of the Republican’s first term in office.

“You don’t just throw around the idea of tariffs across the board,” said Ms. Harris. “He’s just not very serious.”

The interview was Ms. Harris’s first on her own since replacing US President Joe Biden as the Democratic nominee in July. She gave a joint interview with running mate Tim Walz in August.

‘Smithereens’

Mr. Trump’s campaign said her speech was “full of lies” and that she had already had three and a half years as part of the Biden administration to tackle problems like low prices.

The Republican is making similar pledges to boost American manufacturing, based largely on his plans to impose sweeping tariffs on foreign imports.

“You’re going to have protection from them coming in, because we’re going to put on from 50 to 200 percent tariffs,” Mr. Trump told supporters in Mint Hill, North Carolina, another crucial battleground state.

But the ex-commander-in-chief spent a good part of his speech talking about the threats to his life — from the two assassination attempts he has escaped in the space of two months to threats by Iran.

“If I were the president, I would inform the threatening country, in this case Iran, that if you do anything to harm this person, we are going to blow your largest cities and the country itself to smithereens,” Trump said.

Mr. Trump meanwhile plans to return on October 5 to the Pennsylvania town of Butler where a gunman made an attempt on his life at a rally in July, his campaign said Wednesday.

A gunman accused of planning to kill Mr. Trump at his Florida golf course just over a week ago, Ryan Routh, was indicted Tuesday for the attempted assassination of a major presidential candidate.

The twin assassination attempts came amid one of the most dramatic US election campaigns in modern political history, in a dizzying chain of events since a disastrous debate in June led to Biden quitting the White House race over concerns about his age.

Mr. Biden told ABC talk show “The View” on Wednesday that he was now “at peace with my decision” — even if he insisted he could still have beaten Trump.

The outgoing president criticized Trump, saying there was “not a social redeeming value” to the Republican, and said his advice to Ms. Harris to win was to “be herself.”

When the Federal Reserve delivers a widely-anticipated interest rate cut on Wednesday (September 18, 2024), its first in four years, the move will resonate well beyond the United States.

The size of a first move and the scale of overall easing remains open to debate, while a looming U.S. election is another complicating factor for global investors and ratesetters looking for a steer from the Fed and pinning hopes on an economic soft landing.

“We don’t know yet what kind of cycle this is going to be—will it be like 1995 when there was just 75 bps of cuts or 2007-2008, when there was 500 bps,” said Kenneth Broux, head of corporate research, FX and Rates at Societe Generale.

Here’s a look at what is in focus for world markets:

Follow the leader

In spring, as U.S. inflation proved stickier than expected, investors questioned how far others such as the European Central Bank or the Bank of Canada could cut rates if the Fed stayed on hold this year before their currencies weakened too far, adding to price pressures.

U.S. cuts finally starting comforts regions facing weaker economies. Traders added to bets for rate reductions by other central banks as Fed rate-cut expectations grew recently.

Yet they price fewer cuts in Europe than for the Fed, with the ECB and Bank of England sounding more vigilant around inflation.

Confidence in Fed cuts starting is a boon for bond markets globally that often move in lock step with Treasuries. U.S., German and British government bond yields are all set for their first quarterly fall since end-2023, when a Fed pivot was anticipated.

Breathing space

Lower U.S. rates could give emerging market central banks more room for manoeuvre to ease themselves and support domestic growth.

Around half of the sample of 18 emerging markets tracked by Reuters have already started cutting rates in this cycle, front-running the Fed, with easing efforts concentrated in Latin America and emerging Europe. But volatility and uncertainty around the U.S. Presidential election clouds the outlook.

“The U.S. election will have a major bearing on this because, depending on various fiscal policies, it really complicates the cutting cycle,” said Trang Nguyen, global head of EM credit strategy at BNP Paribas. “We could see more idiosyncratic actions among central banks on the back of that.”

Strong dollar reprieve

Those economies hoping U.S. rate cuts will weaken the robust dollar further, lifting their currencies, may be disappointed.

JPMorgan notes the dollar has strengthened after a first Fed cut in three out of the last four cycles.

The dollar outlook will be driven largely by where U.S. rates are relative to others.

The safe-haven yen and Swiss franc could see their respective discounts to U.S. rates almost halve by end-2025, Reuters polls suggest, while sterling and the Australian dollar may only acquire a marginal yield advantage over the dollar. Unless the dollar becomes a real low-yielder, it will continue to hold its appeal among non-U.S. investors.

Asian economies, meanwhile, have led markets’ front-running of U.S. cuts, with South Korea’s won, the Thai baht and Malaysian ringgit surging through July and August. China’s yuan has wiped out year-to-date losses versus the greenback.

Rally on

A global equity rally, which faltered recently on growth fears, could resume if lower U.S. rates boost economic activity and means recession is avoided.

World stocks tumbled in early August following weak U.S. jobs data. “You always have a wobbly market around the first cut because the market wonders why central banks are cutting,” said Barclays head of European equity strategy Emmanuel Cau.

“If you have a cut without a recession, which is the mid-cycle script, usually the markets tend to go back up,” Cau said, adding that the bank favoured sectors benefiting from lower rates, such as real estate and utilities.

A U.S. soft landing should also play well in Asia, although the Nikkei has fallen more than 10% from July’s record high on a rising yen and as Japan’s rates rise.

Time to shine

In commodities, precious and base metals such as copper should benefit from Fed rate cuts, and for the latter the demand outlook and a soft landing are key.

Lower rates and a weaker dollar, reducing not just the opportunity cost of holding metals but also of buying them for those using other currencies, could fuel momentum.

“High rates have been a critical headwind to base metals, driving a significant negative physical demand distortion from destocking and weighing on capital intensive end-demand segments,” said MUFG’s Ehsan Khoman.

Precious metals could also gain. Gold, which typically has a negative relationship with yields as most demand is for investment purposes, usually outperforms other metals during rate cuts. It is at record highs, but investors should be cautious, said the World Gold Council’s John Reade.

Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation.

Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they’re shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.

More Americans are buying used cars, too, rather than new, forcing some dealers to provide discounts on new cars again.

The growing consumer pushback to what critics condemn as price-gouging has been most evident with food and consumer goods like paper towels and napkins.

In recent months, consumer resistance has led large food companies to respond by sharply slowing their price increases from the peaks of the past three years.

This doesn’t mean grocery prices will fall back to their levels of a few years ago, though with some items, including eggs, apples and milk, prices are below their peaks. However, the milder increases in food prices should help further cool overall inflation, which is down sharply from a peak of 9.1% in 2022 to 3.1%.

Political impact

Public frustration with prices has become a central issue in President Joe Biden’s bid for re-election. Polls show that despite the dramatic decline in inflation, many consumers are unhappy that prices remain so much higher than they were before inflation began accelerating in 2021.

Mr. Biden has echoed the criticism of many left-leaning economists that corporations jacked up their prices more than was needed to cover their own higher costs, allowing themselves to boost their profits. The White House has also attacked “shrinkflation,” whereby a company, rather than raising the price of a product, instead shrinks the amount inside the package. In a video released on Super Bowl Sunday, Mr. Biden denounced shrinkflation as a “rip-off.”

Consumer pushback against high prices suggests to many economists that inflation should further ease. That would make this bout of inflation markedly different from the debilitating price spikes of the 1970s and early 1980s, which took longer to defeat. When high inflation persists, consumers often develop an inflationary psychology: Ever-rising prices lead them to accelerate their purchases before costs rise further, a trend that can itself perpetuate inflation.

“That was the fear — that everybody would tolerate higher prices,” said Gregory Daco, chief economist at EY, who notes that it hasn’t happened. “I don’t think we’ve moved into a high inflation regime.”

Instead, this time many consumers have reacted like Stuart Dryden, a commercial underwriter at a bank who lives in Arlington, Virginia. On a recent trip to his regular grocery store, Mr. Dryden, 37, pointed out big price disparities between Kraft Heinz-branded products and their store-label competitors, which he now favours.

Mr. Dryden, for example, loves cream cheese and bagels. A 12-ounce tub of Kraft’s Philadelphia cream cheese costs $6.69. The store brand, he noted, is just $3.19. A 24-pack of Kraft single cheese slices is $7.69; the store label, $2.99. And a 32-ounce Heinz ketchup bottle is $6.29, while the alternative is just $1.69. Similar gaps existed with mac-and-cheese and shredded cheese products.

“Just those five products together already cost nearly $30,” Dryden said. The alternatives were less than half that, he calculated, at about $13.

“I’ve been trying private-label options, and the quality is the same and it’s almost a no-brainer to switch from the products I used to buy a ton of to just the private label,” he said.

Alex Abraham, a spokesman for Kraft Heinz, said that its costs rose 3% in the final three months of last year but that the company raised its own prices only 1%. “We are doing everything possible to find efficiencies in our factories and other parts of our business to offset and mitigate further price increases,” Mr. Abraham said.

Last week, Kraft Heinz said sales fell in the final three months of last year as more consumers traded down to cheaper brands.

Mr. Dryden has taken other steps to save money: A year ago, he moved into a new apartment after his previous landlord jacked up his rent by about 50%. His former apartment had been next to a relatively pricey grocery store, Whole Foods. Now, he shops at a nearby Amazon Fresh and has started visiting the discount grocer Aldi every couple of weeks.

Corporations exploited disruptions to increase prices

Samuel Rines, an investment strategist at Corbu, says that PepsiCo, Kimberly-Clark, Procter & Gamble and many other consumer food and packaged goods companies exploited the rise in input costs stemming from supply-chain disruptions and Russia’s invasion of Ukraine to dramatically raise their prices — and increase their profits — in 2021 and 2022.

A contributing factor was that millions of Americans enjoyed solid wage gains and received stimulus checks and other government aid, making it easier for them to pay the higher prices.

Still, some decried the phenomenon as “greedflation.” And in a March 2023 research paper, the economist Isabella Weber at the University of Massachusetts, Amherst, referred to it as “seller’s inflation.”

Yet beginning late last year, many of the same companies discovered that the strategy was no longer working. Most consumers have now long since spent the savings they built up during the pandemic.

Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously. Mr. Daco notes that overall sales during the holiday shopping season were up just 4% — and most of it reflected higher prices rather than consumers actually buying more things.

As an example, Mr. Rines points to Unilever, which makes, among other items, Hellman’s mayonnaise, Ben & Jerry’s ice cream and Dove soaps. Unilever jacked up its prices 13.3% on average across its brands in 2022. Its sales volume fell 3.6% that year. In response, it raised prices just 2.8% last year; sales rose 1.8%.

“We’re beginning to see the consumer no longer willing to take the higher pricing,” he said. “So companies were beginning to get a little bit more sceptical of their ability to just have price be the driver of their revenues. They had to have those volumes come back, and the consumer wasn’t reacting in a way that they were pleased with.” Unilever itself recently attributed poor sales performance in Europe to “share losses to private labels.”

Other businesses have noticed, too. After their sales fell in the final three months of last year, PepsiCo executives signalled that this year they would rein in price increases and focus more on boosting sales. “In 2024, we see … normalization of the cost, normalization of inflation,” CEO Ramon Laguarta said. “So we see everything trending back to our long-term” pricing trends.

Jeffrey Harmening, CEO of General Mills, which makes Cheerios, Chex Cereal, Progresso soups and dozens of other brands, has acknowledged that his customers are increasingly seeking bargains. McDonald’s executives have said that consumers with incomes below $45,000 are visiting less and spending less when they do visit and say the company plans to highlight its lower-priced items. “Consumers are more wary — and weary — of pricing, and we’re going to continue to be consumer-led in our pricing decisions,” Ian Borden, the company’s chief financial officer, told investors.

Federal Reserve’s take

Officials at the Federal Reserve, the nation’s primary inflation-fighting institution, have cited consumers’ growing reluctance to pay high prices as a key reason why they expect inflation to fall steadily back to their 2% annual target.

“Firms are telling us that price sensitivity is very much higher now,” Mary Daly, president of the Federal Reserve Bank of San Francisco and a member of the Fed’s interest-rate setting committee, said last week. “Consumers don’t want to purchase unless they’re seeing a 10% discount. … This is a serious improvement in the role that consumers play in bridling inflation.”

Surveys by the Fed’s regional banks have found that companies across all industries expect to impose smaller price increases this year. The New York Fed says companies in its region plan to raise prices an average of about 3% this year, down from about 5% in 2023 and as much as 7% to 9% in 2022.

Such trends suggest that companies were well on their way to slowing their price hikes before Mr. Biden’s most recent attacks on price gouging. Claudia Sahm, founder of SAHM Consulting and a former Fed economist, said, “consumers are more powerful than President Biden.”

The U.S. Federal Reserve is widely expected to keep its key short-term interest rate unchanged when it meets next week. File
| Photo Credit: Reuters

An inflation gauge that is closely monitored by the Federal Reserve showed price increases remained elevated in September amid brisk consumer spending and strong economic growth.

Friday’s report from the Commerce Department showed that prices rose 0.4% from August to September, the same as the previous month. And compared with 12 months earlier, inflation was unchanged at 3.4%.

Taken as a whole, the figures the government issued Friday show a still-surprisingly resilient consumer, willing to spend briskly enough to power the economy even in the face of persistent inflation and high interest rates. Spread across the economy, the strength of that spending is itself helping to fuel inflation.

In a cautionary note, consumers relied increasingly on savings to fuel their shopping last month. Income growth slowed. Adjusted for inflation, income actually fell slightly.

Yet spending jumped 0.4%, after adjusting for inflation. The saving rate fell to 3.4%, down from the 6%-plus average before the pandemic.

“That is clearly unsustainable, and we expect spending growth will slow sharply in the quarters ahead,” said Michael Pearce, lead U.S. economist at Oxford Economics, a consulting firm.

September’s month-to-month price increase exceeds a pace consistent with the Fed’s 2% annual inflation target, and it compounds already higher costs for such necessities as rent, food and gas. The Fed is widely expected to keep its key short-term interest rate unchanged when it meets next week. But its policymakers have flagged the risk that stronger growth could keep inflation persistently high and require further rate hikes to quell it.

Since March 2022, the central bank has raised its key rate from near zero to roughly 5.4% in a concerted drive to tame inflation. Annual inflation, as measured by the separate and more widely followed consumer price index, has tumbled from the 9.1% peak it reached in June of last year.

On Thursday, the government reported that strong consumer spending drove the economy to a robust 4.9% annual growth rate in the July-September quarter, the best such showing in nearly two years. Heavy spending by consumers typically leads businesses to charge higher prices. In Friday’s report on inflation, the government also said that consumer spending last month jumped a robust 0.7%.

Spending on services jumped, Friday’s report said, led by greater outlays for international travel, housing and utilities.

Excluding volatile food and energy costs, “core” prices rose 0.3% from August to September, above the 0.1% uptick the previous month. Compared with a year earlier, though, core inflation eased to 3.7%, the slowest rise since May 2021 and down from 3.8% in August.

A key reason why the Fed may keep rates unchanged through year’s end is that September’s 3.7% year-over-year rise in core inflation matches the central bank’s forecast for this quarter.

With core prices already at that level, Fed officials will likely believe they can “proceed carefully,” as Chair Jerome Powell has said they will do, and monitor how the economy evolves in coming months.

Still, the data in Friday’s report showed that while prices for many goods, including cars, furniture and appliances are actually falling, the price increases for services remain chronically high.

Restaurant meals, for example, rose 0.4% in price from August to September, up from a 0.2% rise the previous month. They are now 5.8% more expensive than they were a year earlier.

One measure the Fed is monitoring closely — services prices, excluding energy and housing — jumped 0.4% last month, after rising only 0.1% in August. The Fed watches that gauge because it tracks prices in a set of industries that are labor-intensive and particularly sensitive to rising wages. Higher wages can fuel inflation if businesses pass on their higher labor costs by raising prices.

A solid job market has helped fuel consumer spending, with wages and salaries having outpaced inflation for most of this year. Yet Friday’s report showed that the growth in overall income — a category that, in addition to wages, includes interest income and government payments — has slowed. Adjusted for inflation, after-tax income slipped 0.1% in September, the third straight monthly decline. Shrinking incomes could weaken spending and growth in the months ahead.