The Federal Reserve’s preferred gauge of underlying inflation rose at the slowest annual pace in nearly three years while consumers spent at a robust rate, keeping the debate alive as to whether officials will soon cut borrowing costs.
The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 2.9% in December from a year earlier, according to the Bureau of Economic Analysis. From a month ago, it advanced 0.2%.
Inflation-adjusted consumer spending climbed 0.5% in December for a second month, the biggest back-to-back increase in nearly a year. Real disposable income, the main supporter of consumer spending, advanced 0.1%, the smallest in three months.
| Metric |
Actual |
Estimate |
| Real consumer spending (MoM) |
+0.5% |
+0.3% |
| PCE price index (MoM) |
+0.2% |
+0.2% |
| PCE price index, excl. food & energy (MoM) |
+0.2% |
+0.2% |
| PCE price index (YoY) |
+2.6% |
+2.6% |
| PCE price index, excl. food & energy (YoY) |
+2.9% |
+3.0% |
Friday’s report caps a year that saw inflation retreat at a much faster rate than the Fed and Wall Street economists anticipated, all while a sturdy job market kept powering consumer spending. While some of that momentum is expected to moderate this year, many forecasters still see the economy dodging a recession.
Even so, Fed officials have been cautious to declare victory on inflation and have said they want to see sustainable signs of cooling before lowering borrowing costs. While they’ve started to discuss such a move, policymakers are expected to keep interest rates at a two-decade high when they meet next week.
Treasury yields rose, while S&P 500 index futures were lower and the dollar pared losses. Traders are betting on about a 50% chance that the Fed will cut rates in March.
A message from Advisor Perspectives and VettaFi: Advisors: You're Invited to Exchange! Nothing would be a better start to the new year than if you joined us at Exchange, an in-person conference for members of the financial services community in Miami, Florida on February 11-14th. For a limited time, we're offering you a free Exchange ticket!* Register today with code WINTER24 to claim your pass.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Augusta Saraiva
