Key Fed indicator shows inflation ‘trending sideways’

The latest reading of the Federal Reserve’s preferred inflation gauge showed price increases stagnated in October compared with the previous month, raising questions about whether progress toward the central bank’s 2 percent target has stalled.

The core personal consumption expenditures (PCE) index, which excludes food and energy costs and is closely watched by the central bank, rose 0.3% in October from the previous month, beating Wall Street’s expectations of a 0.3% gain and the reading from September corresponded.

Core prices rose 2.8% from a year ago, in line with Wall Street expectations and above September’s 2.7%. On an annual basis, total PCE rose 2.3%, up from September’s 2.1%.

“Core PCE has moved sideways in recent months,” Paul Gruenwald, global chief economist at S&P Global Ratings, told Yahoo Finance. “If you believe the Fed is on a rate-cutting path, which we do, you’re probably leaning toward the pause (rate-cutting) camp.”

Gruenwald added that the Fed will be in no hurry to cut rates unless it sees a “more compelling decline” in core PCE.

The print follows two sticky inflation readings from other October data sets. Earlier this month, the core consumer price index (CPI), which strips out the more volatile costs of food and gasoline, showed that prices rose 3.3% annually for the third straight month in October. Meanwhile, the central producer price index (PPI) showed prices rose 3.1% annually in October, up from 2.8% the previous month and above economists’ expectations of a 3% rise.

In a recent speech, Federal Reserve Governor Michelle Bowman expressed concern that the Fed’s progress toward its 2% inflation target has “stalled” and said the central bank should be “cautious” in cutting interest rates ” proceed.

“We have seen significant progress in reducing inflation since the beginning of 2023, but progress appears to have stalled in recent months,” Bowman said in a speech at the Forum Club of the Palm Beaches.

Nevertheless, markets expect the Federal Reserve to cut interest rates again in 2024. As of Wednesday morning, markets are pricing in about a 67% chance that the Fed will cut interest rates at its December meeting, according to the CME FedWatch tool.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

Click here for the latest stock market news and in-depth analysis, including stock-moving events

Read the latest financial and business news from Yahoo Finance