2023-11-30 22:03:00
The Fed’s favorite measure of inflation, PCE, fell in October, signaling that price increases are slowing significantly. This has led to speculation that the central bank will cut interest rates multiple times next year, which has contributed to gains in the stock market lately.
The core price index of private consumption expenditure (PCE) increased in October by 3.5% compared to last year, down from 3.7% in September and in line with expectations. The index increased by 0.2% compared to September. The headline PCE index, which includes food and energy prices, rose 3% in October from a year earlier, below forecasts of 3.1%.
Consumer spending was led by a 0.2% increase in spending on services, with international travel being a significant contributor. The core PCE measure is now at its lowest level since April 2021, showing that inflation is moving closer to the Fed’s 2% target. This could indicate that the Fed may start lowering interest rates in the first half of next year, possibly as early as March.
Economist Andrew Hunter wrote that there is a good chance that the Fed will start cutting interest rates in March next year, and that markets have not yet priced in rate cuts over the next 18 months.
The PCE data is especially important given that it is the last inflation indication before the Fed’s two-day meeting on December 12. The inflation data suggests that the Fed may be able to bring inflation down without triggering a recession. However, there are also signs that economic growth is cooling, including in the labor market.
Traders now expect a 5% chance that the Fed will deliver at least seven rate cuts of a quarter of a point next year, with the market consensus coalescing around five cuts. This comes as the odds of interest rates falling have fallen amid signs of easing inflation and upbeat comments from Fed officials, leading to the S&P500’s best performance since July 2022.
Two comments from readers supported the idea of interest rate cuts, citing historical data and the desire for a weakened dollar to boost exports as reasons behind the expected rate cuts.
#Inflation #continues #fall #interest #rate #cut #coming