Inflation slowed in August, paving way for interest rate cut

(NEW YORK) — President-elect Donald Trump sharply criticized the rising price of groceries throughout his campaign, even delivering an address outside his New Jersey home in August alongside a table covered with cereal boxes, coffee grounds and ketchup.

A wave of consumer discontent appears to have helped lift him back into the Oval Office, but Trump now faces the task of how to ease voters’ frustration.

Food inflation soared to a peak of more than 10% in 2022, but price increases have slowed to about 2%, U.S. Bureau of Labor Statistics data shows.

Still, the yearslong bout of rapid inflation has sent food prices soaring more than 25% since President Joe Biden took office.

Typically, prices do not fall across the board unless the economy slows or even tips into recession, which would reduce consumer demand but also impose economic hardship, some economists told ABC News.

Still, Trump could enact policies that may slow the rise of grocery prices, or even lower the cost of some household staples, economists added.

“Prices on different items absolutely could come down,” Michael Faulkender, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, told ABC News.

In response to ABC News’ request for comment, the Trump transition team said in a statement that Trump intends to fulfill the commitments he made during the campaign. But the transition team did not specifically address the issue of grocery prices.

“The American people re-elected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail. He will deliver.” Karoline Leavitt, a spokesperson for the transition team, told ABC News.

Increase oil production

On the campaign trail, Trump often responded to concern about prices with a three-word mantra: “Drill, baby, drill.”

Trump, who has downplayed human-caused climate change, vowed to bolster the oil and gas industry by easing regulation and expanding output.

In theory, increased oil production could lower food prices since gas makes up a key source of costs throughout the supply chain, whether a firm is growing crops or transporting them to a seller, economists said.

“Energy is a big input cost for food,” David Andolfatto, an economist at the University of Miami, told ABC News. “That should put downward pressure on food prices.”

While such a move could prove beneficial, increased oil output under President Joe Biden coincided with the surge of inflation in recent years. Since oil is sold on a global market, a surge in domestic production may not lower prices for U.S. consumers as much as some may expect.

The U.S. set a record for crude oil production in 2023, averaging 12.9 million barrels per day, according to the U.S. Energy Information Administration, a federal agency.

A further uptick in oil production risks accelerating the nation’s carbon emissions and worsening the impact of climate change, which would carry costs down the road, Luis Cabral, a professor of economics at New York University, told ABC News.

“We can’t simply look at the benefits,” Cabral said, acknowledging the potential for lower food prices. “There are also important costs in terms of emissions and climate change.”

Bolster antitrust enforcement

To address high food prices, the Trump administration could crack down on market concentration, a term economists use to describe the dominance of a given industry by a handful of firms, some experts said.

They pointed to the market power of large corporations as a cause of rapid price increases, saying companies use their outsized role in the market to raise prices without fear of a competitor offering a comparable product at a more affordable price.

“Whenever there are fewer players in an industry, prices tend to be higher,” Cabral said. “Supermarkets aren’t an exception.”

Grocery store profit margins surged in 2021 and rose even higher two years later, even after price increases had begun to cool, a Federal Trade Commission study in March showed.

In February, the Federal Trade Commission sued to block the merger of supermarket chains Kroger and Albertsons, which would amount to the largest supermarket merger in U.S. history. The proceedings are ongoing, and will likely stretch into the Trump administration.

Some economists cast doubt over the potential benefits of antitrust, saying the recent bout of inflation coincided with an uptick in production costs during the pandemic. “It’s hard to argue that it’s therefore some kind of profiteering,” Faulkender said.

Price-gouging ban

During the campaign, Vice President Kamala Harris proposed a federal ban on price gouging for food and groceries.

The plan could resemble price-gouging bans in place in 37 states, which prohibit a sudden spike in prices for scarce goods, the Harris campaign said. Those bans prohibit companies from exploiting a sudden imbalance between supply and demand by significantly hiking prices.

While Trump may be reluctant to adopt a policy put forward by his proponent, he could advance a price-gouging ban as a means of preventing acute price increases for specific goods.

For instance, egg prices have skyrocketed 30% over the year ending in October, U.S. Bureau of Statistics data on Wednesday showed. The spike owed primarily to an avian flu outbreak that has decimated supply. Last year, egg prices climbed more than 60% in response to a similar avian flu outbreak.

Economists who spoke to ABC News differed on the effectiveness of a potential price-gouging ban.

Some economists dismissed the policy as a flawed solution, since state-level bans usually get triggered only in the case of emergencies and, even then, often lack clarity about the type of company behavior that constitutes price-gouging.

“I don’t think a federal price-gouging ban would help at all,” Cabral said.

Andolfatto, of the University of Miami, said a price-gouging ban could lower food prices if it barred rapid price increases under some circumstances. However, those benefits may be outweighed by the downside, since such a ban could override the market signal delivered by prices, which help direct the distribution of goods to places where they are in short supply.

“These types of interventions have unintended consequences,” Andolfatto said.

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(NEW YORK) — A fresh inflation report on Wednesday will show whether price increases have continued a monthslong cooldown as they fall toward normal levels.

Economists expect prices to have increased 2.6% over the year ending in August. That figure would mark a notable slowdown from the year-over-year rate of 2.9% recorded in the previous month.

After six consecutive months of slowing price increases, inflation stands at its lowest level since March 2021. However, inflation remains nearly a percentage point higher than the Federal Reserve’s target rate of 2%.

The new price data on Wednesday holds major implications for the course of widely expected interest rate cuts.

The chances of an interest rate cut at the Fed’s meeting next week are all but certain, according to the CME FedWatch Tool, a measure of market sentiment. Market observers are divided over whether the Fed will impose its typical cut of a quarter of a percentage point, or opt for a larger half-point cut.

So far this year, the job market has slowed alongside cooling inflation. That trend was underscored last week by a weaker-than-expected jobs report, though employers added a solid 142,000 jobs. The unemployment rate has ticked up this year from 3.7% to 4.2%.

The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, low interest rates help stimulate economic activity and boost employment, while high interest rates slow economic performance and ease inflation.

Recent trends have shifted the Fed’s focus away from controlling inflation and toward ensuring a healthy job market.

Speaking at an annual gathering in Jackson Hole, Wyoming last month, Fed Chair Jerome Powell said the “time has come” for the Fed to adjust its interest rate policy.

At previous meetings, Powell said the Fed needed to be confident that inflation had begun moving sustainably downward to its target rate of 2% before instituting rate cuts. Last month, Powell appeared to indicate that the Fed had achieved that objective.

“My confidence has grown that inflation is on a sustainable path down to 2%,” Powell said.

Since last year, the Federal Reserve has held interest rates at their highest level in more than two decades. High borrowing costs for everything from mortgages to credit card loans have helped slow the economy and lower inflation, but the policy risks tipping the U.S. into a recession.

Last month, Goldman Sachs economists raised the probability of a U.S. recession in the next year from 15% to 25%. However, economists disagree about whether current economic conditions warrant serious concern.

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(NEW YORK CITY) — The U.S. stock market climbed higher in early trading on Tuesday, as voters rushed to the polls and the nation awaited the results of a closely contested presidential election.

The S&P 500 ticked upward about 1%. The Dow Jones Industrial Average gained more than 300 points, jumping about 0.8%. The tech-heavy Nasdaq rose 1.3%.

Gains at large tech firms are helping to boost the market. Shares of Nvidia, an artificial intelligence chipmaker, climbed nearly 3% in early trading.

As of the early afternoon, tech giants Microsoft and Amazon each saw shares rise about 1.5%.

The market upswing follows a flurry of largely positive economic news over the past week. Government data released last week showed robust economic growth over a recent three-month period, alongside a continued cooldown of inflation.

U.S. hiring slowed in October, but fallout from hurricanes and labor strikes likely caused an undercount of the nation’s workers, U.S. Bureau of Labor Statistics data on Friday showed.

Ivan Feinseth, a market analyst at investment firm Tigress Financial, attributed the returns on Tuesday to eager anticipation among investors to move past the U.S. election.

“The nightmare of an endless election and a contentious battle has consumed a lot of the focus and attention. It’s almost over. Then it goes back to the fundamentals of the market,” Feinseth said.

The gains on Election Day extended a banner year for U.S. stocks. The S&P 500 and Nasdaq have each climbed more than 20% this year while the Dow Jones is up about 11%.

The performance has owed to enthusiasm about artificial intelligence as well as resilient economic growth and expectations that interest rates would ease, Feinseth said.

The Federal Reserve cut its benchmark interest rate a half of a percentage point in September, dialing back its yearslong fight against inflation and delivering relief for borrowers saddled with high costs.

The Fed is widely expected to cut interest rates by another quarter of a percentage point when it meets on Thursday, according to the CME FedWatch Tool, a measure of market sentiment.

An expectation of interest rate cuts among investors often sends stocks higher, since lower rates pave the way for cheaper corporate borrowing and the potential for higher profits.

“The market looks toward the future, and the Fed is now on the side of the bulls,” Feinseth said.

Over the full span of the next administration, the market will likely move higher whether the nation elects Vice President Kamala Harris or former President Donald Trump, experts previously told ABC News. However, each candidate’s policies could favor different types of stocks while posing unique risks, they added.

Trump has proposed a combination of low corporate tax rates and loose regulation that would likely bolster corporate profits and propel the stock market higher, experts said. Prices would likely increase under Harris, as they have under the economic stewardship of President Joe Biden, they added.

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