The latest reading of the Federal Reserve’s inflation gauge showed price increases in October were flat from the previous month, raising questions about whether progress toward the central bank’s 2% target has come to a standstill.
The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs and is closely watched by the central bank, rose 0.3% in October from the previous month, in line with Wall Street’s expectations for 0.3% and September’s numbers. .
Over the previous year, core prices rose 2.8%, in line with Wall Street expectations and above September’s 2.7%. On an annual basis, total PCE rose 2.3%, an improvement from 2.1% in September.
“Core PCE has gone sideways in recent months,” Paul Gruenwald, chief economist at S&P Global Ratings, told Yahoo Finance. “If you think the Fed is on a downward rate path, which we are doing, then that’s probably leaning toward a pause. [cutting interest rates] camp.”
Gruenwald added that the Fed won’t rush to cut rates unless it sees a “more convincing decline” in the core PCE.
Going into publication, markets have been debating how much further the Fed will cut rates in the coming year. Minutes from the November Fed meeting released Tuesday showed some officials believe the Fed could pause rate cuts if “inflation remains high.”
Read more: What the Fed’s interest rate cut means for bank accounts, CDs, loans and credit cards
Recent data has added to this. Earlier this month, the Consumer Price Index (CPI), which excludes the more volatile costs of food and gas, showed prices rose 3.3% annually for the third month in a row in October. Meanwhile, the core producer price index (PPI) showed prices rose 3.1% annually in October, up from 2.8% the month before and above economists’ expectations for a 3% increase.
In a recent speech, Federal Reserve Governor Michelle Bowman expressed concern that the Fed’s progress toward its 2% inflation target has “stalled” and said the central bank should be “cautious” work needs to go into lowering interest rates.
“We have seen significant progress in reducing inflation since early 2023, but progress appears to have stalled in recent months,” Bowman said in a speech at the Forum Club of the Palm Beaches.
Still, markets expect the Federal Reserve to cut rates again in 2024. As of Wednesday morning, markets had priced in about a 67% chance that the Fed would cut rates at its December meeting, according to CME’s FedWatch tool.
“Inflation momentum toward the Fed’s 2% target has picked up sharply recently, but not enough in our view to prevent the Fed from cutting rates in December,” wrote Chief U.S. Economist Ryan Sweet from Oxford Economics in a letter to clients on Thursday.
Additional inflation data before the Fed’s December 18 rate decision will influence the Fed’s decision. Stephen Brown, deputy chief North American economist at Capital Economics, wrote in a note to clients that the incoming November CPI and PPI data, due ahead of the Fed’s December meeting, “will be critical for the Fed’s decision’.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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