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

Posted December 22, 2023
Piero Cingari
Benzinga

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, moved slightly lower, minutes after the PCE release.

Originally Posted December 22, 2023 – Fed’s Favorite Inflation Gauge Cools More Than Expected, Cementing Rate Cut Expectations For 2024

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