Fed’s Targeted Inflation Measure Drops
The personal consumption expenditures (PCE) index, closely monitored by the Federal Reserve, showed a decline of 0.1% in consumer prices compared to the previous month, according to the Labor Department. This decrease brings some welcome relief to millions of Americans who have been burdened by higher prices.
Annual Price Increase Slows Down
The PCE index also revealed that prices climbed 2.6% on an annual basis, down from the revised 2.9% recorded the previous month. These figures fell short of estimates from Refintiv economists.
Core Prices Show Encouraging Growth
Core prices, which exclude the more volatile measurements of food and energy, rose 0.1% from the previous month and 3.2% from the previous year. This marks the strongest reading for core inflation since 2021 and indicates progress in the Fed’s fight against inflation.
Inflation Data Signals Positive Outlook
Chair Jerome Powell of the Federal Reserve has previously stated that core data is a better indicator of inflation. Both the core and headline numbers suggest that inflation is steadily moving closer to the Fed’s desired 2% target. This positive data is seen as beneficial for the economy and the market.
Consumer Spending Rises Ahead of Holiday Season
The report also revealed that consumer spending increased by 0.3% in November, compared to a 0.1% increase in October. This indicates that Americans are still actively spending as they approach the crucial holiday season.
Challenges for Consumers
Despite the rise in consumer spending, economists anticipate a slowdown in the coming months. Americans continue to grapple with expensive goods, high interest rates, and the resumption of federal student loan payments.
Stock Market Responds Positively
Stocks experienced a rise on Friday morning following the release of the report. Investors were optimistic about the possibility of multiple interest rate cuts in 2024. The first rate cut is expected to occur in March.
Fed’s Stance on Rates
The Federal Reserve chose not to increase rates during its recent meeting in December. However, it projected three quarter-point rate hikes for the next year, signaling the end of its nearly two-year tightening campaign.
“We entered 2023 worried about inflation and how many more times the Fed was going to raise rates,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “But we are ending 2023 surprised at how low inflation has come down – especially as unemployment has remained so low – and are wondering how many times the Fed will cut.”