Fed’s Preferred Inflation Gauge Rises, but December Rate Cut Expectations Unchanged

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The Fed’s closely watched inflation gauge has risen again, according to data released by the U.S. Bureau of Economic Analysis on November 27.

The Personal Consumption Expenditures (PCE) Price Index increased by 2.3% year-over-year in October, up 0.2 percentage points from the previous month, while the month-over-month increase held steady at 0.2%. The core PCE price index increased by 2.8% year-over-year, up 0.1 percentage points from the previous month, marking the largest gain since April of this year. On a monthly basis, it rose by 0.3%, unchanged from the previous month.

Breaking down the components, goods prices continued to decline, with a 0.1% month-over-month drop, consistent with the previous month. However, services prices saw strong growth, rising by 0.4% month-over-month, an acceleration of 0.1 percentage points, marking the second consecutive month of faster growth. This strength in services prices remains a significant barrier to broader inflation moderation.

(Source: BEA, TrendForce)

Minutes from the Federal Reserve’s November meeting, published on November 26, revealed that most officials are confident inflation will eventually return to the 2% target but stressed that the process could take longer than expected. While the latest data supports the Fed’s outlook, it is unlikely to change market expectations for a 25-basis-point rate cut at the December meeting.

Federal Reserve Chair Jerome Powell previously highlighted in his November press conference that inflation could temporarily rebound toward year-end due to seasonal factors, including a low base effect from 2023 and holiday spending in the fourth quarter. Thus, the recent rise in inflation appears to align with the Fed’s expectations and does not deviate from its policy considerations.