The Federal Reserve’s preferred inflation gauge slowed at a better-than-expected pace in November as price pressures continued to subside heading into 2024. Last month, the annual personal consumption expenditure (PCE) price index eased to 2.6 percent, down from 2.9 percent in October, the lowest reading since February 2021. This also came in below the consensus estimate of 2.8 percent. PCE also fell 0.1 percent on a month-over-month basis for the first time since April 2020, according to the Bureau of Economic Analysis (BEA).
Core PCE, which excludes the volatile energy and food components, slowed to 3.2 percent year-over-year in November, down from 3.4 percent in the previous month. Core PCE clocked in just under economists’ expectations of 3.3 percent. President Joe Biden called the numbers “a significant milestone” for the U.S. economy. Investors were a little bit more subdued heading into Christmas, as the leading benchmark indexes were roughly flat. The U.S. Treasury market was mixed to finish the trading week, with the benchmark 10-year yield at around 3.9 percent. The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, continued slumping on Dec. 22 and tumbled below 101.50.
U.S. central bank officials might turn more dovish as the six-month core PCE rose at an annualized pace of 1.9 percent, suggesting that monetary authorities could reach their 2 percent objective soon. The Fed chooses PCE as a more reliable inflation gauge because it concentrates on what consumers spend on goods and services. The consumer price index (CPI) measures what goods and services cost in the marketplace. Chair Jerome Powell and the Federal Open Market Committee (FOMC) have been pleased by the progress in the institution’s inflation fight. They have left interest rates unchanged at a range of 5.25 percent and 5.5 percent since July.
According to the Summary of Economic Projections (SEP), the Fed expects to pull the trigger on three rate cuts next year, lowering the median policy rate to 4.6 percent.
Despite the dovish tilt at the December FOMC policy meeting, officials have expressed concern about the market’s ultra-bullish reaction to Mr. Powell’s press conference, with many saying that it is too premature to entertain the idea of cutting interest rates.
While Fed officials appear to be adopting a cautionary approach to monetary policy amid inflation risks, consumers have turned suddenly confident on the economy and inflation. The University of Michigan’s Consumer Sentiment Index advanced to 69.7 in December, up from 61.3 in November. Measurements of current conditions and expectations also ballooned this month. Personal income rose 0.4 percent in November, up from an upwardly revised 0.3 percent in the previous month and topping the market forecast. Personal spending inched higher by 0.2 percent, up from a downwardly revised 0.1 percent in October.
The BEA released additional figures highlighting the state of the consumer. Personal income rose 0.4 percent in November, up from an upwardly revised 0.3 percent in the previous month and topping the market forecast. Personal spending inched higher by 0.2 percent, up from a downwardly revised 0.1 percent in October. This fell short of the consensus estimate of 0.3 percent. The personal saving rate increased for the second straight month, touching 4.1 percent last month.
Recent figures could suggest that consumer demand is weakening, and the holiday shopping season could be the “last hurrah for consumers before they rein in spending,” added Mr. Doty. Meanwhile, durable goods orders surged 5.4 percent in November, reversing the adjusted 5.1 percent crash in October. New home sales plummeted 12.2 percent in November, totaling 590,000 units. This is significantly down from the previous month’s 4 percent drop, which was revised from the negative 5.6 percent decline seen in October.
