October’s Personal Consumption Expenditures (PCE) showed that headline inflation was flat for the month, with the year-over-year reading falling from 3.4% to 3%. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, rose by 0.2% in October. The year-over-year reading fell from 3.7% to 3.5% – the lowest level in more than two years.
What’s the bottom line? Inflation has made significant progress lower after peaking last year, with the headline reading at 3% (down from 7.1%) and the core reading at 3.5% (down from 5.6%). Plus, annualizing the last six months’ worth of readings puts Core PCE at 2.4%, which is even closer to the Fed’s 2% target.
Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years. The Fed did not hike at their September or November meetings, so they could continue to assess incoming inflation, labor sector and other economic data. Many economists believe this progress lower is enough for the Fed to pause rate hikes once again at their next meeting. We’ll find out for sure on Wednesday, December 13.