Data indicated Friday that the Federal Reserve's preferred inflation gauge held steady last month, adding another layer of complexity to the central bank's near-term outlook on price pressures and rate cuts.
The Bureau of Economic Analysis' PCE Price Index report for November showed that core prices rose at an annual rate of 2.8%, matching the October reading and Wall Street's consensus forecast.
Core pressures, which strip away volatile food and energy prices, were up 0.1% on the month, compared with October's 0.3% gain and Wall Street's consensus estimate of 0.3%.
Markets focus on the core PCE inflation reading, which the Fed considers a more accurate representation of overall price pressures as it incorporates changes in consumer spending patterns.
The BEA's headline PCE inflation index quickened to an annual rate of 2.4%, topping Wall Street's estimated 2.5% and the 2.3% pace recorded in October. The BEA said prices were up 0.1% on the month, following a 0.3% reading in October.
The BEA also noted that personal incomes for September rose 0.3%, slowing from the revised 0.7% pace in October. Spending accelerated 0.4% compared with the 0.3% advance over the prior month.
Bond yields easing in the wake of inflation data
"Sticky inflation appeared to be a little less stuck this morning," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.
"The Fed’s preferred inflation gauge came in lower than expected, which may take some of the sting out of the market’s disappointment with the Fed’s interest rate announcement on Wednesday," he added. "Longer term, the Fed is still facing policy uncertainty from the incoming White House administration, so the odds still favor a pause on rate cuts in January."
U.S. stocks pared declines following the data release, with futures indicating a 33-point decline for the S&P 500 and a 145-point drop for the Dow Jones Industrial Average.
The tech-focused Nasdaq is called 195 points lower.
Following the data release, benchmark 10-year note yields were 2 basis points lower at 4.526%, while 2-year notes eased 2 basis points to 4.261%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.31% lower at 108.074.
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Earlier this week, the Fed lifted its 2025 inflation outlook, based on the PCE reading, and expects its preferred gauge to end the year at 2.5%, up from its prior forecast of 2.1%.
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Fed dot plots suggest 2 interest rate cuts in 2025
The Fed also published its final Summary of Economic Projections report for the year. It is a collection of growth and inflation forecasts from officials that will guide its policy path over the next three years.
The so-called dot plots suggest two rate cuts in 2025, with an end-of-year Federal Funds Rate of 3.9%, up from its September projection of 3.4%.
The Atlanta Fed's GDPNow tracker suggests the economy is growing at a better-than-expected 3.2% clip heading into the year's final weeks. At the same time, the Commerce Department's CPI inflation report for November showed core price pressures holding at 3.3%.
November also produced a stronger-than-expected overall labor market reading, with 227,000 new hires and an employment rate of 4.2%.
Consumer spending was also solid, with November retail sales rising by a stronger-than-expected 0.7% to around $725 billion and data analysts reporting record sales and travel over the Thanksgiving holiday weekend.
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