Is Disinflation Stalling in the US? The Federal Reserve’s Monetary Policy Dilemma

The recent debate among reasonable individuals as to whether disinflation in the US is indeed stalling has sparked concerns about the implications for the Federal Reserve’s monetary policy. However, it appears that the underlying strength of the economy may be enough to hold off on cutting benchmark interest rates.

On Friday, data released by the Bureau of Economic Analysis showed that personal spending rose 0.4 percent in February after adjusting for inflation, beating the median estimate of economists polled by Bloomberg who had forecast a 0.1 percent increase. This positive news was further supported by reports from the previous day showing that consumer sentiment reached its highest level since July 2021, weekly initial jobless claims fell and pending home sales rebounded in February after falling in January.

In an economy that has consistently performed well and is being scrutinized for any weaknesses, these latest data points suggest several areas of concern. While disinflation may be slowing down, it’s clear that other indicators such as personal spending and consumer sentiment are still moving in a positive direction. This could make it challenging for central bankers to decide on whether to cut benchmark interest rates or not.