The latest reading of the Federal Reserve’s preferred inflation gauge showed an increase in rates in October from the previous month, raising questions about whether the central bank’s 2% rate hike has stalled.
The core Personal Consumption Expenditures (PCE) index, which excludes food and energy costs and is closely monitored by the central bank, rose 0.3% from the previous month in October, in line with Wall Street’s expectations of 0.3% and the reading from September. .
Over the past year, average prices rose 2.8%, in line with Wall Street expectations and above the 2.7% seen in September. On the year, total PCE increased 2.3%, a pickup from the 2.1% seen in September.
“Core PCE has been going sideways for the last few months,” Paul Gruenwald, chief economist at S&P Global Ratings, told Yahoo Finance. “If you think the Fed is on a rate-lowering path, which we do, it’s probably leaning towards a standstill. [cutting interest rates] camp.”
Gruenwald added that the Fed will not rush to cut rates unless they see a “satisfying decline” in core PCE.
The publication follows a number of inflation readings from other datasets for October. Earlier this month, the core Consumer Price Index (CPI), which takes out the most volatile food and gas prices, showed prices in October posted an annual gain of 3.3% for the third month in a row. Meanwhile, the core Producer Price Index (PPI) showed prices increased by 3.1% year-on-year in October, up from 2.8% the previous month and above the economic expectation of 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 “stagnant” and said the central bank should proceed “with caution” when cutting 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.
However, the market expects that the Federal Reserve will reduce interest rates again in 2024. As of Wednesday morning, the market is pricing in a 67% chance that the Fed will reduce rates at its December meeting, on the CME FedWatch tool.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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