The Fed's recommended inflation measure rose less than expected in November, providing a glimmer of relief amid persistent price pressures that called into question the central bank's recent interest rate cuts.
The personal consumption expenditures (PCE) price index rose just 0.1% last month, the Commerce Department said Friday. The figure was lower than the 0.2% increase expected by economists and suggested a pause in the gradual upward trajectory.
Despite the monthly slowdown, year-on-year inflation rose slightly to 2.4% from 2.3% in October. The hike moves inflation further away from the Fed's 2% target and underscores the Fed's challenges navigating a complex economic climate.
Fed officials' forecasts released Wednesday show officials believe inflation will reach 2.4% for all of 2024 and rise to 2.5% in 2025. As a result, officials now expect only two rate cuts. Next year, the number will further triple, and the initial forecast of a four-person reduction has been revised downward.
The so-called core PCE index, which excludes the volatile categories of food and energy, also rose 0.1% last month. Compared to 12 months ago, this metric has increased by 2.8%. The 12-month index stopped declining in May, suggesting that inflation remains above the Fed's target. The core PCE index is widely recognized by Fed officials as an important indicator of future inflation trends.
The inflation report comes just two days after the Fed concluded its last policy meeting of the year, where officials announced further rate cuts despite stagnant inflation and labor market resilience.
Fed officials are cautious about the trajectory of inflation, a reversal from the confidence they expressed over the summer that inflation would continue to decline even as interest rates fell. This change has made the market unstable. Stocks posted their biggest single-day decline in months after the Fed's announcement, and premarket trading on Friday showed continued anxiety, with the Dow Jones Industrial Average and S&P 500 posting modest declines.
Meanwhile, investors don't expect another rate cut until at least the spring, putting the Fed's strategy of charting an uncertain path to economic recovery under intense scrutiny.
