novembers inflation data confirmed what many economists had been expecting price increases probably have peaked providing relief in sight from the highest cost of living surge in more than 40 years thats the upside of the latest consumer price index reading tuesday the broadbased basket of goods and services showed prices up just 01 last month translating into a 71 increase from a year ago while the inflation rate is still extraordinarily high theres widespread agreement that the peak has passed inflation was terrible in 2022 but the outlook for 2023 is much better said bill adams comericas chief economist supply chains are working better business inventories are higher ending most of the shortages that fueled inflation in 2020 the surge in energy prices has unwound a bit in recent months and food prices edged slightly lower in november too indeed the soft cpi reading came due to a broad array of costs either declining or slowing energy prices fell 16 for starters used vehicle prices a primary inflation driver in this cycle were off 29 bacon declined 18 seafood fell 14 and airline fares tumbled 3 and workers finally got a break with inflationadjusted average hourly earnings rising 05 for the month though theyre still down nearly 2 over the past year theres also hope that geopolitical forces could help bring down inflation if china continues to reopen and steps away from its zerocovid policy that should provide a disinflationary impulse what happens from here though is the hard part a fairly concerning trend the federal reserves series of interest rate increases six in all taking the central banks benchmark shortterm borrowing rate up 375 percentage points with more to come have yet to really make their way through the economy central bank officials like to say that monetary policy adjustments happen with long and variable lags that usually dont set in for at least a year in fact the only sector where interest rate increases have seemed to hit so far has been housing so with lots of policy tightening still in the pipeline softer inflations accompanying economic slowdown is yet to come the feds critics worry that the rate increases may have gone too far and could be a severe weight on the economy once inflation wears off the slowdown in inflation appears to be more driven by postpandemic normalization finally playing out more so than it looks like the 425 basis points of rate hikes including tomorrows likely 50 bps increase the fed has implemented taking effect wrote josh jamner investment strategy analyst at clearbridge investments this is actually fairly concerning he added because the lagged effects of fed tightening are still looming in 2023 and the economy appears to be slowing on its own lending to elevated recession risks in our view in the coming year economists also are in wide agreement that a recession is probably coming next year most are characterizing the expected contraction as shallow thats believable considering that the atlanta fed is tracking fourthquarter gdp growth of 32 which would be the best of the year but the economy hasnt seen this level of policy tightening essentially ever particularly when including the feds 95 billion a month reduction in its bond holdings so as inflation slows and the economy cools theres reason for caution that this years shallow may be equivalent to the 2021 proclamations from many in the economic community including at the fed that inflation was going to be transitory pressure to ease possible there is significant risk that monetary policy will have become too restrictive given inflations momentum toward normality said pnc senior economist kurt rankin but its a risk that the fed is clearly willing to take given that any inflationary embers not fully stamped out could cause much greater damage to the us economy than the mild recession pnc views as likely if the economy does soften more than expected in 2023 that presents another problem for the fed should the recession be steeper and more prolonged than expected markets and political forces could apply pressure for the fed to start easing again its possible we could be on the road to 2 inflation because theres a recession next year said joseph lavorgna chief economist at smbc nikko securities in this era of transparency and the political backdrop i cant imagine the calls for them to begin easing if the economy is in freefall next year the fed concludes its twoday policy meeting wednesday with markets widely expecting a 05 percentage point increase in the federal funds rate that would take the shortterm lending benchmark to a target range of 42545 the highest in more than 15 years however following the cpi report traders priced in a lower terminal rate or end point for the fed rate hikes the market now expects the central bank to hike to about 484 before stopping lower than the recent high of 5