Fed's Preferred Inflation Gauge Rises, but December Rate Cut Expectations Unchanged

By TrendForce

2024-11-28

The Fed’s closely watched inflation gauge has risen again, according to data released by the U.S. Bureau of Economic Analysis on November 27.

The Personal Consumption Expenditures (PCE) Price Index increased by 2.3% year-over-year in October, up 0.2 percentage points from the previous month, while the month-over-month increase held steady at 0.2%. The core PCE price index increased by 2.8% year-over-year, up 0.1 percentage points from the previous month, marking the largest gain since April of this year. On a monthly basis, it rose by 0.3%, unchanged from the previous month.

Breaking down the components, goods prices continued to decline, with a 0.1% month-over-month drop, consistent with the previous month. However, services prices saw strong growth, rising by 0.4% month-over-month, an acceleration of 0.1 percentage points, marking the second consecutive month of faster growth. This strength in services prices remains a significant barrier to broader inflation moderation.

(Source: BEA, TrendForce)

Minutes from the Federal Reserve’s November meeting, published on November 26, revealed that most officials are confident inflation will eventually return to the 2% target but stressed that the process could take longer than expected. While the latest data supports the Fed’s outlook, it is unlikely to change market expectations for a 25-basis-point rate cut at the December meeting.

Federal Reserve Chair Jerome Powell previously highlighted in his November press conference that inflation could temporarily rebound toward year-end due to seasonal factors, including a low base effect from 2023 and holiday spending in the fourth quarter. Thus, the recent rise in inflation appears to align with the Fed’s expectations and does not deviate from its policy considerations.

United States' PCE and Core PCE (YoY) from 2019 to 2024

U.S. Continuing Claims Surpass 1.9 Million, Hitting a Three-Year High

The U.S. labor market remains balanced, but unemployed individuals are facing increasing challenges in re-entering the workforce, according to data released by the U.S. Bureau of Labor Statistics on November 27. Initial jobless claims for the week totaled 213,000, down 2,000 from the revised figure of 215,000 in the prior week, marking the lowest level since April this year. The four-week moving average decreased by 3,750 to 217,000, also the lowest since May. Read more at Datatrack   In contrast, continued claims for unemployment benefits rose by 9,000 to 1,907,000 from the revised 1,898,000 in the previous week, reaching their highest level since November 2021. This increase reflects not only the effects of October’s hurricanes and the Boeing strike but also highlights the growing difficulty for unemployed individuals in returning to the labor force. Read more at Datatrack   Minutes from the Federal Reserve’s November meeting, released on November 26, revealed that while the risk of a significant labor market downturn has lessened compared to September, some officials remain concerned about potential further deterioration. The sustained rise in continued claims could be one indicator of such risks. The upcoming release of employment data in early December will be particularly critical. If the unemployment rate and nonfarm payrolls remain at levels that indicate a balanced labor market, the Fed may consider slowing the pace of rate cuts in 2025. This would be based on an assessment that inflationary risks remain elevated while downside risks to the labor market are gradually diminishing.