PCE Index was Both Hot and Cold — Evening Brief – 12.20.24
The Core PCE Price Index, the Federal Reserve’s favored inflation metric, saw a lower-than-anticipated increase of +0.1% in November, compared to forecasts of +0.2%, and a decrease from the +0.3% print in October, reported the Bureau of Economic Analysis on Friday. Year-over-year, the index rose 2.8%, missing the 2.9% projection and maintaining the same rate as October.
Meanwhile, the headline PCE Price Index increased by 0.1% in November, compared to an estimated rise of 0.2% and a 0.2% increase in October. The index increased year-over-year to 2.4% from 2.3%, marking its highest level since July.
Meanwhile, the SuperCore – Core Services Ex-Shelter PCE, another closely watched metric of the Federal Reserve, increased by 0.16% in November, resulting in a year-over-year rise of 3.51% and reaching its highest level since April.
“This month’s inflation print is quite benign, but does it even matter,” said Olu Sonola, Fitch Ratings’ head of U.S. economic research. “The bottom-line is another one or two months of benign inflation prints will not change the hawkish monetary policy pivot that was introduced on Wednesday. The Fed is now likely to wait to see how tariff and immigration policy unfolds over the next coming months before we see another rate cut.”
While many FOMC members are downplaying the real risk that inflation will not fall to its 2% target, some members are taking a more cautious approach. Cleveland Fed President Beth Hammack, the lone dissenter at this week’s FOMC meeting, stated that her decision was a “close call” and attributed it to stubborn inflation with a robust labor market, which influenced her vote to maintain the federal funds rate unchanged.
The balance of risks to the outlook looks to be tilted toward higher inflation, she noted in a statement on Friday. That contradicts with the Fed’s statement on Wednesday that risks appear to be “roughly balanced.”
“In my mind, maintaining the target range for the federal funds rate at 4.50% to 4.75% at the December 2024 meeting was the best choice given the strength of recent economic data, accommodative financial conditions, and my forecast that inflation will remain somewhat above 2% over the next year amid a healthy labor market,” Hammack said.
Meanwhile, San Francisco Federal Reserve Bank President Mary Daly also described the quarter-point interest rate cut as a “close call,” agreeing with Chair Jay Powell that a cautious approach to future policy moves is now required.
“We might end up with fewer cuts than two,” Daly said in an interview with Bloomberg Television. “We might have to respond and end up with more if inflation falls faster, or you see a significant weakening in the labor market. And I’m comfortable sitting in that center court position and waiting for the data to come in, and we’ll actually respond as they do.”