Falling Inflation Helps Biden, Just Not the Fed

The annualized rate of inflation in the U.S. fell again in December, according to figures released by the Bureau of Labor Statistics (BLS) early on Thursday morning.

The annualized rate of inflation last month was 6.5 percent, down from 7.1 percent in November in what will likely be seen as another indication that U.S. inflation had peaked after previously reaching a 40-year high.

The Consumer Price Index for All Urban Consumers (CPI) fell by 0.1 percent month-on-month. That's a significant development and another fall since November, when prices rose 0.1 percent on a seasonally adjusted basis.

Thursday's inflation figures are likely to be welcome news for the Biden administration as the White House braces for probes from the new Republican majority in the House of Representatives.

In October, prices rose 0.4 percent month-on-month on a seasonally adjusted basis, while the annualized rate of inflation was 7.7 percent.

Inflation is one of the topics the House GOP has said they will focus on this year after it featured as a major campaign issue during the recent midterm elections in November.

House Republicans have already sought documents from the Treasury relating to the Biden family's business dealings and more investigations into the administration are expected and that could include the administration's handling of the economy.

However, the latest inflation numbers could also pose a challenge for the Federal Reserve as the U.S. central bank continues its efforts to tackle inflation. The Fed's target is an annualized rate of 2 percent.

President Joe Biden has argued that his administration is fighting inflation and has repeatedly pointed to the Inflation Reduction Act of 2022, which aims to tackle it through reducing the deficit as well lowering prescription drug costs and investing in energy security and climate change programs, among other measures.

The Bureau of Labor Statistics noted that December's annualized rate "was the smallest 12-month increase since the period ending October 2021."

"Relative to expectations, the Consumer Price Index for December delivered. The tide has turned, and improvement is now the prevailing trend," said Greg McBride, chief financial analyst at consumer financial services company Bankrate, in an email sent to Newsweek on Thursday morning.

"The easing of inflation pressures is evident, but this doesn't mean the Federal Reserve's job is done. There is still a long way to go to get to 2 percent inflation," McBride said.

The Fed is due to make a decision on a further interest rate hike on February 2 and Thursday's inflation numbers are certain to factor into that decision. In December, the Fed raised interest rates for the seventh time in 2022.

The interest rate affects the cost of borrowing and when the rate increases, the cost of servicing credit card debt, mortgage repayments and other loans increases.

The central bank's rate-setting committee raised the benchmark rate by 0.5 percent on December 14, increasing its target rate into a range between 4.25 percent and 4.5 percent. That's the highest level in 15 years.

Atlanta Fed Bank President Raphael Bostic told reporters on Monday that if Thursday's figures showed inflation slowing then he would take a quarter point—0.25 percent—increase "more seriously and to move in that direction."

San Francisco Fed President Mary Daly appeared to agree in an interview with The Wall Street Journal on Monday, saying that a rise of 0.25 percent or 0.5 percent was "on the table."

Newsweek has asked the White House for comment.

Update 01/12/23 09:15 a.m. ET: This article was updated to include more information.