Fed's Preferred Inflation Gauge Shows Mild Rise in November, Easing Economic Concerns

Diccon Hyatt, a seasoned financial and economic journalist, has extensively covered the pandemic-era economy through hundreds of articles over the past two years. His expertise lies in simplifying complex financial concepts, focusing on how economic changes affect personal finances and markets. His previous roles include positions at U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• November's inflation rate, as measured by PCE—the Federal Reserve's preferred metric—was unexpectedly moderate.
• Annual inflation edged up to 2.4% from 2.3% in October, slightly below the anticipated 2.5% increase.
• Federal Reserve officials are likely to await additional positive inflation data before considering further reductions in borrowing costs designed to control inflation.

In November, inflation measured by the Personal Consumption Expenditures (PCE) index, favored by Federal Reserve policymakers, increased but at a slower pace than economists had predicted.

The cost of living rose 2.4% year-over-year in November, up from 2.3% in October, according to the Bureau of Economic Analysis' monthly report on spending and inflation. This increase was below the 2.5% rise forecasted by economists surveyed by Dow Jones Newswires and The Wall Street Journal.

"I remain optimistic that the recent firming in inflation represents a temporary blip rather than a shift in trajectory," said Austan Goolsbee, President of the Chicago Federal Reserve Bank, during a CNBC interview.

Core inflation, which excludes volatile food and energy prices, held steady at 2.8% annually, contrary to the expected rise to 2.9%. Policymakers focus on core inflation as it better reflects underlying inflation trends unaffected by temporary price swings.

This subdued inflation reading contrasts with the Consumer Price Index, which indicated persistent price increases in November. The Federal Reserve prioritizes the PCE inflation measure when shaping monetary policy, aiming to maintain a 2% annual inflation rate after a peak exceeding 7% in 2022.

Implications of the November PCE Report for Federal Reserve Policy

With inflation approaching the Fed's 2% target, the central bank has been gradually lowering the federal funds rate since September. These rate reductions come after a prolonged period of elevated borrowing costs intended to curb spending and ease inflation.

Nevertheless, Fed officials remain cautious amid concerns that forthcoming economic policies under President Donald Trump could reignite inflationary pressures, suggesting future rate cuts may be limited and more deliberate.

Economist Ali Jaffery from CBC commented that the unexpectedly favorable inflation data is unlikely to alter the Fed's cautious stance.

"The Fed is expected to maintain a watchful approach for the foreseeable future," Jaffery noted.

Update as of December 20, 2024: This article includes recent remarks from Austan Goolsbee.

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