The Federal Reserve said that inflation has made "real progress," but consumers are still not buying it!

Last week, the Federal Reserve cut its key interest rate by a larger-than-usual 50 basis points, emphasizing its belief that after a long three years, it has almost defeated inflation, but the general public may not necessarily think so. A consumer survey, including one released by the Associated Press-NORC Public Affairs Research Center last Friday, showed that most Americans are still dissatisfied with the economy, as two years ago, as the economy rebounded from the pandemic recession, inflation reached its highest level in forty years, and the economy is still impacted. However, some economists believe that the shift towards continuously lowering borrowing rates may eventually boost consumer confidence. Inflation has been declining for over two years, almost returning to the Federal Reserve's 2% target. A positive factor is that the growth rate of average income currently exceeds the growth rate of prices, making it more affordable for more families to purchase necessities. Inflation remains a heated topic in the election campaign. Trump is trying to capitalize on public dissatisfaction, blaming the Biden-Harris administration's policies for the surge in inflation. However, a poll last Friday found that voters are now evenly split on the economic management abilities of Trump and Harris. In June of this year, an Associated Press poll showed that 60% of people disapproved of Biden's economic record. This indicates that at least from a political perspective, Americans' economic views are starting to improve. What went almost unnoticed at Powell's press conference last week was his estimate that the inflation measure preferred by the Federal Reserve would reach 2.2%. This is a significant drop from the peak of 7% two years ago. Powell also provided a layman's definition to explain the Fed's mission of seeking "price stability": "A good definition of price stability is when people don't think about inflation in their daily decisions." Powell did not imply that the Fed has fully achieved this goal. He acknowledged that consumers are still "experiencing high prices, not high inflation," which he said is "painful." However, he added, "I think we've made real progress." Economist Sofia Baig from Morning Consult pointed out that Americans still view high prices as a financial burden. According to Morning Consult's survey, she said that when most people think about inflation, they think about how low prices were two to four years ago. In contrast, Fed officials and economists typically measure success over shorter time frames - compared to a year ago, six months ago, or even a month ago. Baig said that over time, consumers tend to adapt to higher prices, especially when their income keeps up. Some of the pessimism surrounding the economy may have been exacerbated by Trump's continued attacks on the Biden-Harris administration over the past three years, with these attacks primarily focused on inflation. According to the University of Michigan's Consumer Confidence Survey, Democrats now have a more optimistic view of the economy than they did before the pandemic. In contrast, Republican confidence has dropped by nearly two-thirds. Among independents, confidence is still 40% lower than before the pandemic Bagg also mentioned the impact of social media, where consumers are bombarded with photos and videos pointing to high prices, making Americans more pessimistic about the economy. Some Americans do see prices stabilizing. According to preliminary data from the University of Michigan, consumer confidence rose for the third consecutive month in September. Since 2022, Morning Consult has been surveying shoppers on whether the cost of goods and services they purchase is higher than expected. This index has declined from two years ago, indicating that many Americans are adjusting to higher costs. While people continue to view inflation as a top concern, surveys show that they now expect inflation to remain low in the coming years. The University of Michigan's survey shows that inflation expectations for the next year fell for the fourth consecutive month in September to 2.7%. This is the lowest level since December 2020, consistent with pre-pandemic levels