Fed inflation gauge falls below 3%, with core prices at March 2021 low
The Fed's favored inflation gauge is now trending at the central bank's preferred 2% target, based on data compiled over the past six months.
The Federal Reserve's preferred inflation gauge last month slowed to a fresh 2 1/2-year low in November, posting the first monthly decline since 2020, as cooling price pressures continue to cement the case for Federal Reserve interest rate cuts.
The Bureau of Economic Analysis' PCE Price Index showed core prices eased to 3.2% last month, besting Wall Street's forecast of 3.4% and matching the pace recorded in October. The reading was also the lowest since March 2021.
On a monthly basis, core pressures were up 0.1%, a modestly slower pace compared with November's 0.2% gain.
Markets often key on the bureau's core PCE price index, which the Fed considers a more accurate representation of consumer-price pressures since it blends changes in spending patterns.
The headline index, meanwhile, eased to an annual rate of 2.6%, against Wall Street's forecast of 2.8% and the October tally of 3%. On a monthly basis, prices actually fell by 0.1%, marking the first negative reading since April 2020, thanks in part to a big decline in domestic gas prices.
Core PCE inflation is up 1.87% at an annual rate over the last six months as of November. Between used car & truck prices and housing rents, there is room for inflation to remain benign. We continue to see the Fed cutting its policy rate in March. pic.twitter.com/BK3WNOTiJs— RenMac: Renaissance Macro Research (@RenMacLLC) December 22, 2023
U.S. stocks were modestly higher following the data release with futures tied to the S&P 500 indicating a 7-point opening bell gain and those linked to the Dow suggesting a 75-point decline.
Benchmark 10-year Treasury note yields were 2 basis points higher at 4.871% thanks in part to modestly firmer personal income gains found in the release. Two-year notes were pegged at 4.344%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.22% lower from yesterday's levels at 101.615
CME Group's FedWatch is now pricing in a 72% chance that the Fed starts cutting rates in March, with the odds of a May cut pegged at 100%.
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