Fed’s Key Inflation Gauge Eases to 2.4% in November, Below Expectations

Goods spending was supported by strong demand for motor vehicles and recreational products, while services spending saw notable contributions from financial services, recreation activities, and healthcare. The personal savings rate, however, edged lower to 4.4%, reflecting higher spending relative to disposable income.

What’s Behind the Easing Inflation?

The November data underscores a slowdown in inflationary pressures. Core PCE, which excludes volatile food and energy prices, rose by just 0.1% month-over-month and 2.8% year-over-year. Energy prices dropped by 4.0% compared to November 2023, while food prices increased by 1.4%. Services costs remained a key driver of overall inflation, rising 3.8% annually, while goods prices declined 0.4%.

The relatively stable monthly inflation figures reflect softer pricing in sectors like energy and goods, bolstered by cooling supply chain pressures and cautious consumer demand.

How Do Revisions Impact the Broader Trend?

Updated estimates for prior months indicate that personal income and spending were slightly stronger than initially reported for September and October. These adjustments suggest a more resilient consumer sector heading into the final quarter of 2024, supported by steady wage growth and easing inflation.

Short-Term Implications

The latest inflation figures bolster expectations of the Federal Reserve holding interest rates steady in upcoming policy meetings. The continued deceleration in inflation, especially in core measures, aligns with the Fed’s 2% target. Coupled with resilient consumer spending and income growth, the short-term market outlook appears moderately bullish for equities, particularly in consumer-driven sectors.

However, the reduced savings rate signals potential future constraints on spending, warranting caution for long-term sustainability. Traders should monitor upcoming economic data, especially labor market reports, for further insight into the Fed’s policy direction.