Fed’s Preferred Inflation Gauge Rises 0.2% in October
The Fed’s preferred inflation gauge increased by 0.2% from September and 2.3% annually in October, slightly higher than September's annual PCE figure of 2.1%. Core PCE, excluding food and energy prices, rose 0.3% month over month and 2.8% annually, marking the highest annual core PCE reading since April, up from 2.7% in the previous year.
The probability of a 25-basis point interest rate cut in December rose to 66.5%, following the PCE report. Minutes from the Fed's last meeting indicated that members are considering a slower pace of easing if inflation remains persistent. However, some economists expect officials may choose not to make further cuts this year.
S&P Global chief economist Paul Gruenwald stated that inflation is likely to remain above target, suggesting the Fed will maintain elevated rates for an extended period. The recent PCE report coincides with a strong labor market, as initial jobless claims fell to 213,000, the lowest since April, with revisions indicating a slight increase to 215,000.
Fed officials had anticipated ending 2024 with rates 25 basis points lower than current levels, but recent data may lead them to pause. Additionally, committee members are considering the potential economic impact of a second Trump term, which could influence their decisions heading into 2025.