PCE -0.1% compared to the previous month… First decline since April 2020
Core PCE headline missed market forecast by 3.2%
Charles Schwab “3-month annual rate is 2.16%… “Fed’s target close”
There are signs that U.S. inflation is approaching the 2% level, the policy target of the U.S. Federal Reserve. Some analysts say that the Fed’s preferred inflation rate indicator has fallen below market expectations, and the annual rate for the past three months is already in the 2% range. Accordingly, it seems likely that the Federal Reserve’s interest rate cuts will begin in earnest in the first half of next year (January to June).
On the 22nd (local time), the U.S. Department of Commerce announced that the personal consumption expenditures (PCE) price index in November fell 0.1% compared to the previous month. This is the first time since April 2020 that the PCE price index, the Fed’s preferred price index, fell compared to the previous month. Compared to the previous year, it was 2.6%, down 0.3 percentage points from 2.9% in October.
The core PCE price index increase rate, which is the standard for inflation in the 2% range that the Federal Reserve sets as its policy target, was 3.2% compared to the previous year, down from 3.4% in October and below market expectations (3.3%). The core PCE price index refers to the price index of goods and services excluding food and energy, which are highly volatile.
As the last major U.S. price index released this year clearly supports the slowdown in U.S. prices, the Federal Reserve’s forecast of an interest rate cut in the first half of next year is gaining strength. Considering the annual rate of the price index for the past three months, it is even estimated that the Fed’s policy target of 2% has already been reached. Katie Jones, a Charles Shuap strategist, said on social media
The Federal Reserve has formalized a pivot (policy shift) in its recently announced economic outlook, suggesting three interest rate cuts next year. Federal Reserve officials have recently sounded the alarm over the market’s expectations of an interest rate cut in March, but the ‘March interest rate cut theory’ is expected to continue to gain strength with this PCE indicator.
Bank of America economist Michael Garpen appeared on Bloomberg TV immediately after the PCE announcement and said, “We are predicting that a rate cut in March is possible.”
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.