The Federal Reserve’s preferred inflation gauge held steady last month, adding another layer of complexity to the central bank’s near-term outlook on price pressures and rate cuts.
On Friday the Bureau of Economic Analysis’ PCE Price Index showed core prices rose at an annual rate of 2.8% last month, matching the October reading and Wall Street’s consensus forecast forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.1% on the month, compared with October’s 0.3% gain and Wall Street’s consensus estimate of 0.3%.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures as it incorporates changes in consumer spending patterns.
The BEA’s headline PCE inflation index quickened to an annual rate of 2.4%, topping Wall Street’s estimate of 2.5% and the 2.3% pace recorded in October. Prices were up 0.1% on the month, the BEA said, following a 0.3% reading in October.
The BEA also noted that personal incomes for September rose 0.3%, slowing from the revised 0.7% pace in October. Spending accelerated 0.4% compared with the 0.3% advance over the prior month.
Bond yields easing after PCE reading
U.S. stocks pared declines following the data release, with futures indicating a 33 point decline for the S&P 500 and a 145 point drop for the Dow Jones Industrial Average.Â
The tech-focused Nasdaq is called 195 points lower.
Benchmark 10-year note yields were 2 basis points lower at 4.526% following the data release, while 2-year notes eased 2 basis points to 4.261%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.31% lower at 108.074.
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Earlier this week, the Fed lifted its 2025 inflation outlook, based on the PCE reading, and expects its preferred gauge to end the year at 2.5%, up from its prior forecast of 2.1%.
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Fed dot plots suggest 2 rate cuts in ’25
The Fed also published its final Summary of Economic Projections report for the year, a collection of growth and inflation forecasts from officials that will guide its policy path over the next three years.
The so-called dot plots suggest two rate cuts in 2025, with an end-of-year Federal Funds Rate of 3.9%, up from its September projection of 3.4%.
The Atlanta Fed’s GDPNow tracker suggests the economy is growing at a better-than-expected 3.2% clip heading into the year’s final weeks. At the same time, the Commerce Department’s CPI inflation report for November showed core price pressures holding at 3.3%.
November also produced a stronger-than-expected overall labor market reading, with 227,000 new hires and an employment rate of 4.2%.
Consumer spending was also solid, with November retail sales rising by a stronger-than-expected 0.7% to around $725 billion and data analysts reporting record sales and travel over the Thanksgiving holiday weekend.Â
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