(Yahoo!Finance) - A new reading of the Federal Reserve’s preferred inflation gauge could make it easier for the central bank to justify a dovish shift in 2024, setting the stage for rate cuts in the new year.
The "core" Personal Consumption Expenditures index — which excludes volatile food and energy prices — clocked in at 3.2% for the month of November.
That bested economists’ estimate of 3.3%, and showed that inflation is expanding more slowly than it did earlier in the year.
Another encouraging sign is that core inflation dropped to 1.9% on a six-month annualized basis, which is below the Fed’s target of 2%. That is the first time in three years that the six-month measure fell below the Fed’s 2% goal.
"It is clear that price pressures are abating and the Fed should cut rates accordingly," Luke Tilley, chief economist for Wilmington Trust, said.
The new print released Friday backs up a view expressed last week by Fed Chair Jerome Powell, who signaled the central bank had likely reached the peak on rate hikes and would turn attention to rate cuts looking ahead. The Fed last raised rates in July, to a 22-year high.
The comments sparked a market rally, as investors cheered the end of the most aggressive campaign to cool inflation since the 1980s.
Markets boosted bets on the number of cuts by the Fed next year and predicted there is now a better than 70% chance the Fed will begin loosening in March. Fed officials at their last meeting penciled in a median of three rate cuts for next year without saying when they could begin.
But several Fed officials used media interviews over the past week to throw cold water on whether cuts would actually happen or how quickly.
Chicago Fed President Austan Goolsbee said in an interview that the Fed had not pre-committed to cutting interest rates soon or swiftly, while New York Fed President John Williams said in a separate interview that it was "premature" to talk about a rate cut in March.
Cleveland Fed President Loretta Mester told the Financial Times that markets had gotten "a little bit ahead" of the central bank.
But San Francisco Fed President Mary Daly was more willing this week to acknowledge that cuts are on the table if inflation keeps tumbling. She told the Wall Street Journal that it was appropriate to begin the rate-cut discussion given the progress on inflation.
Richmond Fed President Tom Barkin told Yahoo Finance in an interview this week he needed to see more conviction and consistency that inflation is coming back to the Fed’s 2% target, noting that the data has been jumping around.
Cleveland Fed President Loretta Mester told the Financial Times that markets had gotten "a little bit ahead" of the central bank.
But San Francisco Fed President Mary Daly was more willing this week to acknowledge that cuts are on the table if inflation keeps tumbling. She told the Wall Street Journal that it was appropriate to begin the rate-cut discussion given the progress on inflation.
Richmond Fed President Tom Barkin told Yahoo Finance in an interview this week he needed to see more conviction and consistency that inflation is coming back to the Fed’s 2% target, noting that the data has been jumping around.
By Jennifer Schonberger · Senior Reporter
