A key measure of inflation rose less than expected in October from the month prior, giving another reason for us all to celebrate. The core Personal Consumption Expenditures (PCE) Price Index—which strips out volatile categories like food and fuel—rose 0.2% in October, lower than the 0.3% originally forecast. The PCE Price Index is the Federal Reserve's preferred inflation gauge, and the more it declines, the less likely it is the Fed will hit us with another jumbo rate hike. The entire index, including food and fuel, rose 0.3%, in line with economist expectations.
Since October 2021, the index is up 6%, but has cooled from the rate of 6.3% that we saw in September. Spending was also up in October, as was disposable income. However, in a sign that American households were starting to feel constrained, the personal savings rate fell to 2.3%, down from 2.4% the month prior.
This is one of the most important pieces of economic data that policymakers at the central bank are keeping an eye on. And with PCE figures steadily cooling, it might be safe to say that inflation peaked several months ago and is slowly making its way back down. That means the Fed's rate hikes are having an effect, but we are still a far way off from the 2% inflation target the Fed has set.
So while higher interest rates are most certainly still in our future, at least we can hope to avoid getting walloped by more jumbo rate hikes like those that have sent mortgage rates and credit card interest rates soaring. Yesterday afternoon, Fed Chair Jerome Powell remarked that it made sense to "moderate" the pace of rate hikes. That caused stocks to rally and investors to cheer that the central bank would take it a little easier on all of us going forward.
But we aren't out of the woods yet—we still have a jobs report out tomorrow, which could either raise fears that we might be headed for a recession, or indicate that the U.S. economy is still going strong, causing some to worry that the Fed might think we can handle higher rate hikes. Stocks are lower today to kick off the month of December.
- Kristin
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