With the economy slowing down, prices of goods and services are beginning to look normal, without entering a recession, according to Northeastern experts. 

“The economy’s more resilient than most economists expected, including myself,” says Robert Triest, the chair and professor of economics at Northeastern. “It’s becoming extraordinary times where the inflation rate has come down, despite the resilience of the job market, and I’m hopeful that we’ll continue that.”

Given the inflation rate is falling and unemployment remains low at 3.7%, it is unlikely that the Federal Reserve will push to slow economic activity, Triest says. 

The next big question is, will the Fed decide to raise interest rates again at its next meeting?

The Fed interest rate, which sets the range that banks will lend or borrow to each other overnight, is 5% to 5.25%. The rates are higher than the near-zero rates seen during the height of the pandemic. In June, the Federal Reserve chose to leave the rate unchanged. 

Read Chair Powell's full opening statement from the #FOMC press conference (PDF): https://t.co/KQdViMip53 pic.twitter.com/Ihdh8tlUxr

— Federal Reserve (@federalreserve) June 14, 2023

Over the last year, inflation rose 4%, the lowest in two years, according to the consumer price index in May. 

The Consumer Price Index measures the change in prices consumers pay for goods and services and includes spending patterns for urban areas, which include 90% of the U.S. population. CPI comprises prices of food, clothing, shelter, fuels, transportation, healthcare and goods and services people buy for day-to-day living. 

Housing was the most significant contributor to the increase, followed by used cars and trucks. Motor vehicle insurance, apparel and personal care also rose. 

New vehicle prices are coming down, which could be a sign that the Fed’s interest-rate policies are taking effect, says William Dickens, a professor of economics and public policy at Northeastern. Shoppers may switch to used cars from new ones because of the high-interest rates. 

Airline fares are also coming down, declining 13.4% year over year. 

“Good, because the biggest cost for airlines is fuel, and to the extent that there’s any competition in that market—and there certainly is—you would expect to see the drop in fuel prices causing the airlines to cut their costs,” Dickens says. 

Inflation in energy fell 11.7% over the past year, with gasoline decreasing 19.7% and natural gas falling 11%. However, electricity rose 5.9% over the last year. 

“That’s going to be the question—are falling fuel prices going to pull inflation down? Or is the labor market still too tight?” Dickens asks. 

Food prices were still up 6.7% from a year ago. Inflation for meats, poultry, fish and eggs decreased by 1.2% in May, as the inflation for eggs fell 13.8%, the largest decrease since January 1951. However, the inflation of cereals and bakery products rose 10.7% over the last year. 

The cost of housing was the largest contributor to rising inflation prices, increasing by 8% yearly. The collection of data on the cost of housing lags behind what is happening in the economy. Triest says that he expects the prices to drop nationally in the coming months. 

“The thing to watch for in the coming months will be the effects of the Federal Reserve’s tightening of monetary policy on economic activity,” Triest says. 

The Feds tightened very substantially, and there is a lag that the policy hits the economy, Triest says.

“That could cause further reduction in demand for goods and services, which could put further downward pressure on the inflation rate,” he says. 

The Feds are committed to 2% as the inflation target. The Fed, Triest says, anticipates that the inflation will reach that target by next year—2.5% by the end of 2024 and 2.1% by the end of 2025.

“They seem to be on track to get there,” Triest says. 

Beth Treffeisen is a Northeastern Global News reporter. Email her at b.treffeisen@northeastern.edu. Follow her on Twitter @beth_treffeisen.