Fed's Favorite Inflation Measure Holds At Nearly 3-Year Lows, Bolstering Market Rate Cut Bets

Inflation in the United States held broadly steady in December 2023, as the Federal Reserve’s preferred gauge, the Personal Consumption Expenditure (PCE) price index, remains at its lowest point since February 2021.

The data, released Friday by the U.S. Bureau of Economic Analysis, matches economist estimates and could sustain the likelihood of Federal Reserve rate cuts in the months ahead.

The annual increase in the PCE price index reached 2.6% last month. Its core component, which excludes energy and food items, decelerated to 2.6%.

Simultaneously, personal income experienced a 0.3% monthly increase in December, while personal spending also saw a robust 0.7% surge.

Friday's Economic Data: Key Highlights

• PCE Annual Inflation Rate: The headline PCE annual inflation rate held at 2.6% in December, matching both the previous and expected rate of 2.6%.
• Monthly PCE Price Index: On a monthly basis, the PCE price index rebounded with a 0.2% increase, recovering from a 0.1% decline in November and matching the predicted 0.2% rise.
• Core PCE Annual Inflation Rate: The core PCE annual inflation rate was 2.9% in December, down from November’s 3.2% and slightly below the anticipated 3%.
• Monthly Core PCE Price Index: On a monthly basis, the core PCE price index increased by 0.2%, up from the 0.1% seen in November but in line with market estimates.
• Personal Income: Personal income rose 0.3% from November to December, slowing from the previous 0.4% growth rate but matching the expected 0.3% increase.
• Personal Spending: Personal spending sharply accelerated, rising by 0.7% from November to December, outpacing the previous 0.3% growth rate and the expected 0.4% increase.

Prior to these releases, traders estimated a 52% chance of no change in interest rates in March.

All eyes are now focused on the U.S. stock market’s reaction to these developments.

Both the SPDR S&P 500 ETF Trust SPY and the tech-heavy Invesco QQQ Trust QQQ are fighting for their seventh consecutive session of gains, and the 12th out of 13 positive weeks.

Read now: Tesla’s Post-Earnings Plunge Pulls Elon Musk’s Net Worth Below $200B — How Close Is Jeff Bezos To World’s Richest Title Now?

Photo via Shutterstock.