The Federal Reserve's Favorite Inflation Gauge Shows Price Pressures Easing as Rate Cuts Near

Summary

• Core PCE inflation, the Fed's preferred inflation measure, rose by 4.7% in November 2022, down from 5% in October 2022.
• This is the smallest increase in core PCE inflation since September 2021.
• The slowdown in inflation is a sign that the Federal Reserve's interest rate hikes are starting to have an impact.

What is Core PCE Inflation?

Core PCE inflation is a measure of inflation that excludes food and energy prices. This is because food and energy prices can be volatile and can skew the overall inflation rate.

Core PCE inflation is the Federal Reserve's preferred measure of inflation because it is a more stable measure of underlying inflation trends.

Why is Core PCE Inflation Slowing Down?

There are a number of factors that are likely contributing to the slowdown in core PCE inflation, including:

• The Federal Reserve's interest rate hikes have made it more expensive for businesses to borrow money. This has led to a slowdown in economic growth, which has in turn reduced demand for goods and services.
• The global economy is slowing down, which is also reducing demand for goods and services.
• The supply chain issues that have been plaguing the economy for the past two years are starting to ease, which is making it easier for businesses to get the goods and materials they need.

What Does This Mean for the Federal Reserve?

The slowdown in core PCE inflation is a sign that the Federal Reserve's interest rate hikes are starting to have an impact. This is good news, as it means that the Fed may be able to pause or even stop raising interest rates in the near future.

However, it is important to note that inflation is still well above the Fed's target of 2%. This means that the Fed is likely to continue raising interest rates in the coming months, although at a slower pace.

What Does This Mean for Consumers?

The slowdown in core PCE inflation is good news for consumers. This is because it means that the prices of goods and services are starting to rise at a slower pace.

However, it is important to note that inflation is still well above the Fed's target of 2%. This means that consumers should still expect to see some increases in prices in the coming months.