Fed's Favorite Inflation Gauge Cools More Than Expected, Cementing Rate Cut Expectations For 2024

The Federal Reserve’s preferred inflation gauge, measured by the Personal Consumption Expenditure (PCE) index, continues to cool down, fueling expectations of interest rate cuts in 2024.

Friday’s Economic Digest: November PCE Report, Personal Income, Spending

• The headline PCE came in at 2.6% year-on-year, down from the downwardly revised 2.9% in October, and below economist forecasts of 2.8%.
• On a monthly basis, the headline PCE index contracted 0.1%, below expectations, and down from October's flat reading.
• When energy and food are excluded from the overall PCE basket, core PCE inflation eased to 3.2% year-on-year, down from 3.5% a month earlier and below the expected 3.3%.
• On a monthly basis, the core PCE advanced at a rate of 0.1%, mirroring the downwardly revised previous month's pace and below the predicted 0.2%.
• Personal income increased by 0.4% in November compared to the previous month, aligning with market expectations, advancing from the previously revised 0.3% growth observed in October.
• Consumer spending increased by 0.2% In November compared to October, coming after a revised 0.1% uptick earlier and below the expected 0.3% growth.

Prior to Friday’s economic data, speculators had factored in 162 basis points of interest rate cuts in 2024, equalling to six 25-basis-point cuts.

In its latest Summary of Economic Projections, the Fed forecasted the PCE inflation to decline from 2.8% at the close of 2023 to 2.4% by the end of 2024, and further to 2.1% by the end of 2025.

The US dollar, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, moved slightly lower, minutes after the PCE release.

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