Consumer spending in the U.S. went up by 0.4% in November, showing that the economy is still doing well. This increase led the Federal Reserve (the U.S. central bank) to expect fewer cuts to interest rates in 2025 compared to previous predictions. Spending makes up more than two-thirds of the economy, and even with a small slowdown expected in the coming months, the overall economy is staying strong.
In the third quarter of the year, the economy grew at a rate of 3.1%, following a 3.0% growth from April to June. The Atlanta Federal Reserve predicts a 3.2% increase in the fourth quarter. Fed Chair Jerome Powell praised the economy, saying it’s performing exceptionally well.
This week, the Federal Reserve lowered its key interest rate by 0.25% to the 4.25%-4.50% range. They now expect only two cuts to interest rates in 2025, instead of the four cuts they expected in September. This change is due to the economy remaining strong and inflation still being high.
The job market is also doing well, with low layoffs and rising wages, which helps people spend more. Many families have healthy finances because of high stock market and home prices, leading to more spending. However, some lower-income families are still struggling.
In November, monthly inflation cooled down slightly. The personal consumption expenditures (PCE) price index, which measures what people spend, rose by just 0.1% last month, following a 0.2% gain in October. Over the last year, prices rose by 2.4%, slightly up from 2.3% in October. Core inflation, which excludes food and energy prices, also went up by 2.8%.
The Federal Reserve pays close attention to these price changes as they aim for a 2% inflation target. They had raised interest rates by a total of 5.25 percentage points from March 2022 to July 2023
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