gave Price Index of Personal Consumption ExpenditureA broad gauge that the Fed prefers as its measure of inflation, rose 0.2% in the month and showed a 12-month inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, although the annual rate was higher than the 2.1% level in September.
Excluding food and energy, core inflation showed an even stronger reading, at 0.3% on a monthly basis and an annual reading of 2.8%. Both lived up to expectations. The annual rate was 0.1 percentage point higher than the previous month.
Services prices drove most of the inflation for the month, rising 0.4%, while goods fell 0.1%. Food prices were little changed, while energy was down 0.1%.
Fed policymakers target inflation at a 2 percent annual rate. PCE inflation has been above that level since March 2021 and is nearing 7.2 percent in June 2022, prompting the Fed to embark on an aggressive rate hike campaign.
Stocks were mixed. Following the release, the Dow Jones Industrial Average rose nearly 100 points, although both the S&P 500 and Nasdaq Composite were negative. Treasury yields fell.
Despite a rise in headline inflation, traders raised their bets that the Fed will approve another rate cut in December. The odds of a quarter-percentage-point cut in the central bank’s key borrowing rate Wednesday morning were 66 percent, according to CME Group. Feed Watch Measurement
Although inflation has fallen significantly since the Fed’s tightening, it remains a vexing issue for households and features prominently in the presidential race. Despite its decline over the past two years, the overall impact of inflation has hit consumers hard, particularly at the bottom of the wage bracket.
Consumer spending was still solid in October, although it has slowed slightly since September. Spending in current dollars rose 0.4 percent, in line with forecasts, while personal income rose 0.6 percent, the report said. This is higher than the estimate of 0.3 percent.
The personal savings rate fell to 4.4 percent, the lowest since January 2023.
On the inflation side, housing-related spending has continued to increase in numbers, despite expectations that the pace will cool as rents soften. Home prices rose 0.4 percent in October.
The Fed follows a broad dashboard of indicators to gauge inflation but uses the PCE data primarily for its forecasts and as its primary policy tool. The data is considered broader than the Labor Department’s consumer price index and is adjusted for consumer spending behavior such as substituting more expensive goods for less expensive goods.
Officials view core inflation as a better long-term gauge but use both numbers in considering policy moves.
The release follows consecutive rate cuts by the Fed in September and November totaling three-quarters of a percentage point. Although the decline in November came after the month covered by the report, markets were widely expecting the move.
At the November meeting, Fed officials expressed confidence that inflation is moving toward the 2 percent target, although members advocated for gradual interest rate cuts as they acknowledged uncertainty over how much of a cut. Will be needed.