Fed’s Preferred Inflation Measure Slows to 2.6% in November 2023, Signaling Potential Soft Landing

The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation metric, recorded its slowest growth since early 2021 in November 2023, signaling promising economic trends according to economists.

Highlights:

• November's PCE Price Index increased by 2.6% year-over-year, down from 2.9% in October, moving closer to the Fed's 2% inflation target.
• Core PCE, excluding volatile food and energy prices, rose just 0.1% month-over-month, with an annual increase of 3.2%, reflecting easing inflation pressures.
• Economists interpret these trends as signs that the economy may achieve a soft landing, supported by sustained consumer spending and income growth.

The slight 0.1% monthly decline in the PCE Price Index marks the first reduction since April 2020, underscoring the effectiveness of the Federal Reserve's interest rate hikes aimed at curbing inflation.

The Federal Reserve has indicated potential interest rate cuts in the upcoming year, following consistent data showing inflation moderation and robust economic fundamentals.

While the Consumer Price Index (CPI) reported a 3.1% annual increase in November, the PCE remains the Fed’s preferred measure due to its sensitivity to long-term inflation trends rather than short-term price fluctuations.

Positive economic indicators extend beyond inflation: the labor market remains strong, consumer confidence is buoyed by a robust stock market and reduced fuel costs, and the housing market is beginning to show signs of recovery.

Michael Pearce, lead U.S. economist at Oxford Economics, remarked, "November's income and spending data suggest that core economic growth is slowing to a sustainable pace, while inflationary pressures—including sticky services inflation—are easing. This points increasingly to a soft landing scenario."

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