Inflation Report Signals a Smaller Rate Increase likely in December

    (Photo: Farm Journal and Pexels)

    The latest Consumer Price Index (CPI) data show inflation slowed slightly in October to 7.7%, down from 8.2% in September, government figures show. The October decline looks even better when compared to last summer’s peak of 9.1%.

    The U.S. stock market soared in response to the news. Chip Flory, host of AgriTalk, asked Vince Malanga whether that was the correct response.

    Probably so, Malanga, president of LaSalle Economics, told Flory.

    “Price changes have been weakening for several months, and I think we’ll continue to see further progress in bringing inflation down as we move forward,” he said.

    Don’t expect a quick resolution to inflation, however. Melanga predicts the U.S. Federal Reserve central bank will likely boost its benchmark interest rate again in December, though he anticipates it will be less than 75 basis points.

    Michael Gapen, chief U.S. economist at Bank of America, told CNBC he anticipates the Fed will raise interest rates by a half percentage point in December.

    When Will It Be Enough?
    Melanga says the Fed will be looking for signs of weakness in the economy before it determines rates have been raised sufficiently.

    “They’re worried about easing off inflation too soon, but I think that point is coming,” Melanga says. “I think you’re going to see the economy soften up and the labor market soften up a lot over the next few months, and that’ll give the (Fed) the smoking gun they need.”

    Already, he says changes in the marketplace are signaling a softer economy, with the first indicator being in the mortgage finance industry.

    Layoffs Are Underway

    “You see the banks laying people off who work in mortgage departments, and now we’re seeing tech sell off,” Melanga says. “I think we’re going to see it spread to the retail sector and also the leisure and hospitality sectors.

    “This isn’t your typical industrial recession. This is more a service sector recession,” he adds.

    Hear the entire conversation between Melanga and Flory on AgriTalk here:

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