NEW YORK – Mr Martin Bate, a 31-year-old transport planner in Fort Worth, Texas, spent the middle of 2022 feeling that he was “treading water” as petrol and food prices rose and the prospect of a big rent hike chipped away at his finances.

Since then, he has received a promotion and a raise that amounted to 12 per cent. Petrol prices have fallen and local housing costs have moderated enough that next month, he is moving into a nicer apartment that costs less per square foot than his current place.

“My personal situation has improved a good amount,” Mr Bate said, explaining that he is feeling cautious but hopeful about the economy. “It is looking like it might shape out all right.”

People across the United States are finally getting some relief from what had been a relentless rise in living costs. After repeated false dawns in 2021 and early 2022 – when price increases slowed only to accelerate again – signs that inflation is genuinely turning a corner have begun to accumulate.

Inflation has slowed on an annual basis for six consecutive months, dipping to 6.5 per cent after peaking at about 9 per cent in the summer, partly as petrol has become cheaper. But the deceleration is true even after volatile food and fuel are stripped out: So-called core consumer prices have climbed 0.3 per cent or less for each of the past three months. This is faster than the 0.2 per cent month-to-month changes that were typical before the pandemic, but much slower than the 0.9 per cent peak in April 2021.

The US may have reached an inflection point on inflation at last. The question now centres on what will happen next.

Some economists expect inflation to remain stubbornly faster than before the pandemic, others anticipate a steep deceleration, or something in between. Which prospect plays out matters enormously: The speed and scope of the inflation cool-down will inform how high Federal Reserve policymakers raise rates, how long they leave them elevated and how much pain they inflict on the economy.

For now, the staggering uncertainty has prompted Fed officials to come out in favour of further slowing – but not stopping – their interest rate increases at their Jan 31-Feb 1 meeting. Officials pulled back from their previous three-quarter-point increases to a half-point move in December, and many support raising rates this time by just a quarter-point.

Moving more gradually would give policymakers a better chance to see how the economy was developing, lessening the risk that they drive the economy off a cliff.

“If you are on a road trip and you encounter foggy weather or a dangerous highway, it is a good idea to slow down,” Ms Lorie Logan, president of the Federal Reserve Bank of Dallas, said last week. The same considerations that prompted central bankers to decelerate in December “suggest slowing the pace further at the upcoming meeting”.

As officials and economists try to figure out what will happen with inflation, the fate of everyday Americans hangs in the balance. If the Fed slows down the economy too much in its bid to control prices and causes a steeper recession than is necessary, people will pay with their jobs.

But if continued rapid price increases chip away at pay gains and erode savings, that will also leave households worse off.

“I do worry about the future, I have to say,” said adjunct sociology professor Karen Loeb, 71, in Amherst, Massachusetts. She has been shopping at thrift stores and baking her own challah, or Jewish bread, after watching the prices of goods and groceries rocket higher over the past two years.

For people like Dr Loeb, and for central bankers, there are key reasons to hope that inflation will moderate notably in 2023.

Housing costs are still rising in official price data, but real-time rent trackers show steep slowdowns in asking rents. Economists expect that to feed through to inflation data over the coming months.

A broad range of other goods prices are slowing their ascent or dropping as shipping costs fall back to pre-pandemic levels and supply shortages ease.

While rapid goods inflation was touched off by the supply problems, it was also partly a function of strong demand. But demand is waning as savings slowly erode.

Plus, the Fed raised rates from near zero to above 4.25 per cent last year, which could weigh on consumer spending and make it harder for firms to institute big price increases without scaring away shoppers.

Encouragingly, prices of more than just a few goods or services are showing slowdowns. The share of product categories with inflation above 3 per cent declined from almost three-fourths in early 2022 to less than one half in December, Dr Christopher Waller, a Fed governor, said in a speech last week.

But risks remain, because it is unclear whether the forces now dragging inflation down will be enough to quickly return prices to an annual pace of 2 per cent, the Fed’s goal.

Wage growth is already showing some signs of slowing, and the Fed will receive another employment cost index report the day before its Feb 1 rate decision. While other labour indicators have been more resilient, Fed officials predicted in their latest economic forecasts that unemployment would rise to 4.6 per cent by end-2023, from 3.5 per cent now.

While that would hurt some households, Fed officials still hope for a relatively soft landing. Even Harvard economist Lawrence Summers, a former Treasury secretary, who has been warning that the economy could be heading for a sharp downturn, has upgraded America’s chances of avoiding a painful recession.

“Soft landings are the triumphs of hope over experience, but sometimes, hope does triumph over experience,” Dr Summers said in an interview with Bloomberg Television last week. NYTIMES