Fed's Preferred Inflation Measure Slows To 3%, Paving The Way For Interest Rate Cuts In 2024

The Personal Consumption Expenditure (PCE) price index, known as the Fed’s preferred measure of inflation, slowed from 3.4% in September to an annual 3% rate in October, the Bureau of Economic Analysis said Thursday.

This decrease aligns with economist projections and marks a return to June 2023 levels, which were the lowest since March 2021.

This sharp moderation in inflation further bolsters the prospect of multiple rate cuts in the coming year, with investors eyeing the possibility of the first cut as early as May 2024 and then other four cuts by December 2024, according to CME Group’s FedWatch tool.

October PCE Inflation Report: Key Highlights

• The PCE inflation rate eased from 3.4% year-on-year in September to 3% in October, matching economist expectations. A 3% annual PCE rate was previously seen in June 2023, which was the lowest since March 2021.
  
• The month-on-month progression of the PCE price index was flat, a significant slowdown from the 0.4% jump observed in September and below the expected 0.1%.
  
• Stripping out the often volatile food and energy sectors, the core PCE inflation rate also witnessed a decline, falling from 3.7% to 3.5%, as expected.
  
• On a monthly scale, the core PCE price index showed a 0.2% rise, down from the previous month’s 0.3%, aligning with forecasts.

Personal Income, Spending Decelerate

Parallel to the inflation data, the BEA’s report also highlights a more pronounced slowdown in personal income and spending.

October saw personal income grow by a mere 0.2%, a downturn from the upwardly revised 0.4% increase in September.

Similarly, personal spending edged up by only 0.2% on a monthly basis, cooling significantly from the 0.7% rise in September and hitting its lowest point since March 2023.

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