Fed's Favorite Inflation Gauge Cools More Than Expected, Cementing Rate Cut Expectations For 2024

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The Federal Reserve's preferred inflation gauge, measured by the Personal Consumption Expenditure (PCE) index, continues to cool down, fueling expectations of interest rate cuts in 2024.

Friday's Economic Digest: November PCE Report

  • The headline PCE came in at 2.6% year-on-year, down from the downwardly revised 2.9% in October, and below economist forecasts of 2.8%.
  • On a monthly basis, the headline PCE index contracted 0.1%, below expectations, and down from October's flat reading.
  • When energy and food are excluded from the overall PCE basket, core PCE inflation eased to 3.2% year-on-year, down from 3.5% a month earlier and below the expected 3.3%.
  • On a monthly basis, the core PCE advanced at a rate of 0.1%, mirroring the downwardly revised previous month's pace and below the predicted 0.2%.
Prior to the November PCE report, speculators had factored in 162 basis points of interest rate cuts in 2024, equivalent to six 25-basis-point cuts.

In its latest Summary of Economic Projections, the Fed forecasted the PCE inflation to decline from 2.8% at the close of 2023 to 2.4% by the end of 2024, and further to 2.1% by the end of 2025.

The US dollar, as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP), moved slightly lower, minutes after the PCE release.