Fed’s favorite inflation gauge cooled more than expected in November

An inflation measure closely watched by the Federal Reserve cooled again in November, providing some welcome relief to millions of Americans who have been crushed by higher prices.

The personal consumption expenditures (PCE) index showed that consumer prices fell 0.1% from the previous month, according to the Labor Department. On an annual basis, prices climbed 2.6% — down from the revised 2.9% recorded the previous month.

The figures were both below estimates from Refintiv economists.

In another sign the Fed’s fight against inflation is making progress, core prices — which strip out the more volatile measurements of food and energy — climbed 0.1% from the previous month and 3.2% from the previous year. It marked the best reading for core inflation since 2021.

AMERICANS ARE YANKING MONEY OUT OF THEIR RETIREMENT SAVINGS TO COVER BILLS

While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation. Both the core and headline numbers point to inflation that is steadily returning to the Fed’s preferred 2% target.

“Disinflation is in the data now, and that is wildly positive for the economy and the market,” said Jamie Cox, managing partner for Harris Financial Group. “The Federal Reserve is very likely to begin cutting rates in March.”

A FED PAUSE LIKELY WON’T HELP STRUGGLING CONSUMERS

Other figures included in the report showed that consumer spending rose 0.3% in November, compared with a 0.1% increase in October, suggesting that Americans are still spending ahead of the pivotal holiday season.

Still, many economists anticipate that spending will slow in the coming months as consumers continue to grapple with expensive goods, high interest rates and the resumption of federal student loan payments.

Stocks rose Friday morning as the report fueled investor hopes for multiple interest rate cuts in 2024. Investors expect the first rate cut to come in March.

The Fed skipped a rate hike during its meeting earlier this month, and penciled in three quarter-point rate hikes next year, essentially bringing to an end its nearly two-year tightening campaign. 

“We entered 2023 worried about inflation and how many more times the Fed was going to raise rates,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “But we are ending 2023 surprised at how low inflation has come down — especially as unemployment has remained so low — and are wondering how many times the Fed will cut.”