Inflation Ends 2024 on a High Note, Despite Fed’s Rate Hold
The latest report from the Commerce Department reveals that inflation closed out 2024 with a strong performance, exceeding the Federal Reserve’s target. The personal consumption expenditures price index (PCE) rose 2.6% on a year-over-year basis in December, surpassing the November reading and meeting expectations.
Core Inflation Remains Elevated
The core PCE, which excludes food and energy, registered a 2.8% reading, matching expectations and remaining unchanged from the previous month. Historically, the Fed has viewed core inflation as a better indicator of long-term price trends.
Monthly Gains and Sector Performance
On a monthly basis, headline PCE increased 0.3%, while core PCE rose 0.2%, both in line with forecasts. Food prices saw a modest 0.2% gain, while energy prices surged 2.7%. Durable goods prices, including items like aircraft and electronics, experienced deflation, falling 0.4%. Nondurables, on the other hand, saw a 0.5% increase.
Fed’s Rate Hold and Inflation Expectations
The report comes on the heels of the Fed’s decision to hold its key interest rate steady, despite three consecutive cuts totaling a full percentage point. Clark Bellin, chief investment officer at Bellwether Wealth, notes that inflation remains firmly above the Fed’s 2% target, making the rate hold somewhat ironic.
Fed Governor’s Remarks and Outlook
Fed Governor Michelle Bowman expects inflation to decelerate through 2025 but believes the central bank should maintain its current stance until there are clear signs of progress. Bowman emphasized that more work needs to be done to bring inflation closer to the 2% goal.
Personal Income and Spending
The report also showed that personal income increased 0.4% in December, as forecast, while spending rose 0.7%, slightly ahead of expectations.
Employment Cost Index
In related news, the Bureau of Labor Statistics reported that the employment cost index rose 0.9% in the fourth quarter of 2024, in line with expectations and slightly ahead of the third-quarter reading. On an annual basis, the ECI increased 3.8%.
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