The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures price index, rose 2.4% in November from the year before, beating economists’ expectations. While the annual rate of inflation was expected to increase due to comparisons to a year-ago period when inflation cooled rapidly, the actual reading came in better than expected. The core measure of inflation, which excludes food and energy categories, rose at the slowest monthly pace since May, resulting in an annual rate of 2.8%.
Despite the slight increase in inflation, economists do not believe it is a cause for concern, and the Fed is not likely to accelerate rate cuts. Fed Chair Jerome Powell noted that while there has been “significant progress” on inflation, uncertainty is also growing. San Francisco Fed President Mary Daly said she didn’t give much consideration to potential policies from President-elect Donald Trump when she voted for a quarter-point cut earlier this week, stating that data is what matters most.
However, Cleveland Fed President Beth Hammack, who was the sole dissenter at the Fed’s policy meeting earlier this week, believes monetary policy will need to remain modestly restrictive for some time. She needs to see further evidence that inflation is resuming its path to the Fed’s 2% objective.
In other economic news, consumer spending rose 0.4% in November, less than expected, while income growth slowed to 0.3%. The personal saving rate ticked down to 4.3%. The labor market is also showing signs of slowing, with hiring activity drying up and people staying on the unemployment rolls for longer. Despite this, Americans’ attitudes toward the economy have improved over the past few months, according to the University of Michigan’s Index of Consumer Sentiment.