The Fed's preferred inflation indicator accelerated in October compared to the same period last year, which helps explain the more cautious stance policymakers are taking regarding rate cuts.
Data released on Wednesday showed that the U.S. October PCE price index year-on-year growth rate rebounded from the previous value of 2.1% to 2.3%, while the month-on-month growth rate remained unchanged at 0.2%; on the core side, the U.S. October core PCE price index month-on-month growth rate slightly rebounded from the previous value of 2.7% to 2.8%, with the month-on-month growth rate remaining unchanged at 0.2%.
After the data was released, spot gold fell more than $10 in a short time, and the dollar index rose more than 10 points.
The core PCE annual rate continues to hover around 3% instead of 2%, making the Federal Reserve's upcoming decisions more complex. In September, in response to signs of economic cooling, the Federal Reserve began its rate-cutting cycle with a 50 basis point cut. However, in recent months, progress on inflation has stalled, which may lead the Federal Reserve to pause rate cuts during the two meetings in December or January.
Earlier this month, the core CPI showed that inflation in October rose year-on-year for three consecutive months by 3.3%. Meanwhile, the core Producer Price Index (PPI) showed that prices in October rose year-on-year by 3.1%, up from the previous value of 2.8%, and also higher than the economists' predicted increase of 3%.
At this moment, the economic agenda of elected President Trump will complicate the Federal Reserve's future policy path. Stanley Black & Decker Inc. stated that the company is considering raising prices early next year due to expected increases in tariffs.
The PCE data was released after a series of other economic data ahead of Thursday's Thanksgiving holiday. Another government report released on Wednesday showed that U.S. GDP grew by 2.8% in the third quarter, driven by healthy growth in household and business spending.
In a recent speech, Federal Reserve Governor Bowman stated that progress towards the Fed's 2% inflation target has "stalled" and that the Fed should "proceed with caution" when lowering rates. Bowman said in a speech at the Palm Beach Forum Club: "Since the beginning of 2023, we have made considerable progress in reducing inflation, but progress seems to have stalled in recent months."
Nonetheless, the market expects the Federal Reserve to lower interest rates again in 2024. According to the CME Group's FedWatch tool, the market estimates that there is about a 67% chance the Federal Reserve will lower interest rates at the December meeting.
Article reposted from: Jinshi Data