Last month, the Federal Reserve's preferred inflation gauge slowed to a new two-and-a-half-year low in November, recording the first monthly decline since 2020, as cooling price pressures continue to cement the case for of the Federal Reserve's interest rate cuts.
The Bureau of Economic Analysis' PCE price index showed underlying prices declined to 3.2% last month, beating Wall Street's forecast of 3.4% and matching the pace recorded in October. The reading was also the lowest since March 2021.
On a monthly basis, underlying pressures increased by 0.1%, a slightly slower pace compared to November's 0.2% increase.
Markets typically focus on the bureau's core PCE price index, which the Fed considers a more accurate representation of consumer price pressures as it combines changes in spending patterns.
Meanwhile, the overall index fell at an annual rate of 2.6%, compared to Wall Street's forecast of 2.8% and October's figure of 3%. On a monthly basis, prices fell 0.1%, marking the first negative reading since April 2020, thanks in part to a large drop in domestic gas prices.
Core PCE inflation has increased by 1.87% at an annual rate over the past six months through November. Between used car and truck prices and home rents, there is room for inflation to remain benign. We continue to see the Federal Reserve cutting its official interest rate in March. pic.twitter.com/BK3WNOTiJs
– RenMac: Renaissance Macro Research (@RenMacLLC) December 22, 2023
US stocks rose modestly following the data release, with futures linked to the S&P 500 indicating an opening gain of 7 points and those linked to the Dow suggesting a drop of 75 points.
Benchmark 10-year Treasury yields rose 2 basis points to 4.871%, thanks in part to modestly firmer increases in personal income found in the release. The two-year notes were pegged at 4.344%.
The US Dollar Index, which tracks the greenback against a basket of global peers, was down 0.22% from yesterday's levels at 101.615.
CME Group FedWatch It is now pricing in a 72% chance that the Fed will begin cutting rates in March, with the odds of a May cut pegged at 100%.
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