Economic Indicators Show Mixed Signals
The latest data from the Commerce Department has revealed a mixed bag of economic indicators, with inflation rates holding steady but still above the Federal Reserve’s target. The personal consumption expenditures price index (PCE), the Fed’s preferred inflation gauge, showed a modest 0.1% increase from October, translating to a 2.4% annual inflation rate.
Inflation Remains Above Target
While the annual inflation rate is still above the Fed’s 2% goal, it’s lower than the 2.5% estimate from Dow Jones. The core PCE, which excludes food and energy, also increased 0.1% monthly and was 2.8% higher from a year ago. This reading is considered a better gauge of long-run inflation trends by Fed officials.
Goods and Services Prices
The data revealed little increase in goods prices, while services prices rose 0.2%. Food and energy prices both posted 0.2% gains. On a 12-month basis, goods prices have fallen 0.4%, but services have risen 3.8%. Food prices were up 1.4% while energy fell 4%.
Housing Inflation Cools
One of the stickier components of inflation, housing inflation, showed signs of cooling in November, rising just 0.2%. This could be a positive sign for the economy, as housing costs have been a significant contributor to inflation in recent years.
Income and Spending Numbers Disappoint
Personal income rose 0.3%, falling short of the 0.4% estimate. On spending, personal expenditures increased 0.4%, one-tenth of a percentage point below the forecast. The personal saving rate edged lower to 4.4%.
Market Reaction
Stock market futures held in negative territory after the report, while Treasury yields also slumped. The data may have taken some pressure off the market, which was disappointed by the Fed’s interest rate announcement on Wednesday.
Fed’s Interest Rate Decision
The report comes just two days after the Fed cut its benchmark interest rate another quarter percentage point to a target range of 4.25%-4.5%, the lowest in two years. However, Chair Jerome Powell and his colleagues reduced their expected path in 2025, now penciling in just two reductions compared with four indicated in September.
Powell’s Comments
Powell said Wednesday that inflation has “moved much closer” to the Fed’s goal, but the changes in the projected path for rate cuts reflect “the expectation inflation will be higher” in the year ahead. He cautioned that the path forward is uncertain, and the Fed needs to proceed with caution.
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