The Federal Reserve’s preferred inflation gauge showed signs of easing in October.
The core PCE price index, which excludes food and energy prices, rose 0.2% month-over-month in October and 3.5% from a year ago, both in line with expectations, according to the latest personal income and outlays report by the Bureau of Economic Analysis.
The headline PCE price index, which includes food and energy prices, was mostly flat month-over-month, rising less than 0.1% in October, after a 0.4% rise in both August and September, leading to the weakest reading since July 2022, data shows.
Over the last 12 months, headline PCE has risen at an annualized 3%, which is down from 3.4% in September and the lowest reading since March 2021.
“Although both overall and core inflation are slowing, they both remain well above the Federal Reserve’s 2% objective,” PNC chief economist Gus Faucher told The Dallas Express in an email.
“The personal income and outlays report for October from the Bureau of Economic Analysis was what Federal Reserve policymakers wanted to see,” Faucher wrote. “Both core and overall inflation continue to soften, income growth was solid, and consumer spending growth is slowing, particularly for interest-rate sensitive durable goods.”
Although inflation remains above the Federal Open Market Committee’s (FOMC) goal of 2% over time, Faucher highlighted that inflation has been on a steady trajectory to the long-run goal. Therefore, he says the FOMC “will almost surely keep the fed funds rate in its current range of 5.25% to 5.50% when it meets on December 13.”
So far, the FOMC has approved 11 rate hikes since March 2022, raising the Fed’s benchmark rate from near zero during the COVID-19 pandemic lockdowns to its current range of 5.25% to 5.50%, the highest level in 22 years, as previously reported by The Dallas Express.
The latest economic data suggests rate cuts will happen sooner than later, according to Bill Adams, chief economist at Comerica Bank.
“The Fed is on hold for now, but their pivot to rate cuts is getting closer,” said Adams, per CNBC. “Inflation is clearly slowing, and the job market is softening faster than expected.”
According to the CME FedWatch Tool, which tracks Fed futures, there is a nearly 96% probability — as of market close on Wednesday — that interest rates will remain unchanged at the December 13 meeting.
