Inflation slowdown/ Federal Reserve rate cuts/ PCE price index/ November inflation report/ consumer price trends/ Newslooks/ J. Mansour/ Morning Edition/ Inflation pressures eased in November as the Federal Reserve’s preferred gauge, the Personal Consumption Expenditures (PCE) index, rose just 0.1%, signaling progress after months of sharp gains. Core inflation, excluding food and energy, also increased by 0.1%. These figures arrive as the Fed adjusts its outlook, now anticipating fewer rate cuts in 2025.
Fed’s Inflation Indicator Eases: Quick Looks
- Monthly Growth: PCE prices rose just 0.1% in November, reflecting cooling inflation.
- Core Inflation: Excluding food and energy, core inflation held steady at 2.8% year-over-year.
- Fed Response: Federal Reserve plans fewer rate cuts in 2025, citing persistent price pressures.
- Annual Rate: Yearly inflation ticked up to 2.4%, slightly above the Fed’s 2% target.
- Economic Impact: Lower inflation may relieve consumers but keeps borrowing costs elevated.
Price Pressures Ease in November, Boosting Economic Optimism
Deep Look
The Personal Consumption Expenditures (PCE) price index, closely watched by the Federal Reserve, rose a modest 0.1% for the month, signaling a cooldown from two consecutive months of sharper 0.3% increases. When excluding volatile food and energy prices, the core PCE index also increased by just 0.1%, holding steady at an annual rate of 2.8%.
Inflation Progress and the Fed’s Response
The year-over-year inflation rate rose slightly to 2.4% in November, up from 2.3% in October, and remains above the Fed’s 2% target. Despite this uptick, the broader trend reflects significant progress: inflation has dropped sharply from its peak of 7.2% in June 2022.
Fed Chair Jerome Powell highlighted the central bank’s cautious optimism during a press conference Wednesday. “It’s way below where it was, but we really want to see more progress on inflation,” Powell said.
As a result, the Federal Reserve revised its outlook for 2025, now anticipating just two rate cuts compared to the four projected earlier. The Fed’s current benchmark rate, which was cut to 4.3% this week, remains a critical tool for combating inflation.
Impact on Consumers
The report also indicated the potential for prolonged higher borrowing costs. Mortgage rates and other consumer loan rates are likely to remain elevated due to the reduced pace of rate cuts.
The Federal Reserve favors the PCE index over the more commonly known Consumer Price Index (CPI) due to its ability to better reflect consumer behavior. For instance, the PCE index accounts for changes such as a switch to lower-cost brands during periods of high inflation, making it a more dynamic measure of economic conditions.
In contrast, the CPI, which often shows higher inflation rates, assigns greater weight to categories like housing costs.
Consumer Spending and Economic Outlook
Consumer spending, a key driver of the economy, remained resilient in November despite higher borrowing costs. The moderation in inflation could support consumer purchasing power, but analysts warn of potential economic headwinds if the Federal Reserve tightens monetary policy further.
Policymakers have held their end-of-2025 inflation expectations steady at 2.5%, underscoring their goal of continued progress toward price stability.
Key Takeaways
- Inflation Slows: PCE inflation rose just 0.1% in November, suggesting cooling price pressures.
- Fed Adjustments: Fewer rate cuts are expected in 2025 due to persistent inflation concerns.
- Consumer Impact: Borrowing costs remain high, but easing inflation may support spending power.
- PCE vs. CPI: The PCE index is favored for its nuanced reflection of consumer behavior.
- Long-Term Outlook: Policymakers aim for inflation to fall to 2.5% by the end of 2025.
