Quarter-old government data released Friday showed the Federal Reserve’s preferred measure of inflation rose in line with economists’ expectations in September.
September updates to the personal consumption expenditures (PCE) price index were initially scheduled for release by the Bureau of Economic Analysis on Oct. 31 but faced delays due to the government shutdown that commenced on Oct. 1 and ended Nov. 12.
Core PCE, which excludes food and energy prices, rose 0.2% from August and 2.8% from September 2024, slightly lower than the index’s 2.9% annual gain in August.
The PCE index for all categories rose 0.3% from August and 2.8% from a year earlier, slightly higher than the 2.7% annual increase observed across all items in August.
Though the data underlying Friday’s PCE inflation reading is three months old, it nevertheless presents the last government measure of consumer prices for officials to digest ahead of next week’s Federal Reserve meeting on Dec. 9 and 10.
The central bank’s rate-setting body, the Federal Open Market Committee (FOMC), used an internally generated PCE reading of 2.8% when they voted in late October to lower the federal funds rate by 0.25% for the second consecutive meeting. That decision was made to support weakening labor markets, despite annualized inflation remaining well above the Fed’s stated 2% target.
The decision generated two formal dissents and “strongly differing views” amid Fed policymakers, leading Fed Chair Jerome Powell to suggest in a press conference that additional easing in December “is not a foregone conclusion.”
As many as five of the FOMC’s 12 voting members have publicly expressed opposition to a December rate cut, citing inflation concerns, while four have hung their hammocks in the rate-cut camp, citing fears of a labor downturn.
The quarterly Summary of Economic Projections (SEP), or “dot plot,” was last released by the Fed following its September meeting, when policymakers delivered their first rate cut of the year. It showed a majority of the 19 Fed members who participate in that forward-looking survey expected three rate cuts in 2025.
Six of the participants had, at the time, favored just one cut before the end of the year, while two members had supported two rate cuts.
In recent weeks, however, the market’s confidence in a further reduction of the policy rate at the December meeting has sharply diverged from policymakers’ caution.
Private sector job losses in November continued a monthslong slowdown in hiring and job creation by private employers, garnering support for a third 0.25% reduction in the fed funds rate when policymakers convene next week for their final meeting of the year.
A majority of 100 economists polled by Reuters in early December expect a 0.25% cut next week to support a cooling labor market.
Market-implied odds of a quarter-point cut had risen above 87% as of Friday afternoon, according to fed funds futures pricing tracked by CME FedWatch.
A third quarter-point reduction in the fed funds rate would lower that key overnight lending rate for banks to a range of 3.5% to 3.75%, almost two full points below its range of 5.25% to 5.5% in late 2023.
