The Personal Consumption Expenditures (PCE) Price Index—favored by the Federal Reserve—showed that inflation rose 2.4% year-over-year in November, a slight increase from October’s 2.3% but still below the expected 2.5%. Core PCE, which strips out food and energy costs, held steady at 2.8%, matching the prior month and falling short of forecasts for a rise to 2.9%.
Monthly inflation readings were similarly subdued. Headline PCE increased just 0.1% in November, down from 0.2% in October, while core PCE also rose 0.1%, a significant slowdown from the previous month’s 0.3% gain. These figures suggest that inflationary pressures are cooling and remain broadly within the Federal Reserve’s comfort zone.
Financial markets responded positively to the data. Treasury yields fell sharply, with the 10-year yield retreating to around 4.50% and the 2-year yield dropping to approximately 4.26%. Meanwhile, equity markets regained momentum—the S&P 500 reversed early-session losses and moved higher following the release of the inflation data.
Federal Reserve officials welcomed the report as reinforcement for their cautious approach to monetary easing. With inflation continuing to inch toward the central bank’s 2% target, policymakers signaled they are in no rush to cut interest rates aggressively. They emphasized a data-dependent stance, indicating that additional policy support would hinge on continued progress in inflation moderation and sustained economic stability.
Nonetheless, some economists offered a more guarded view. While November’s numbers point to progress, inflation remains above target, and certain categories—such as housing and services—continue to show stickiness. As a result, analysts anticipate the pace of rate cuts may slow as 2025 approaches. The notion of a steady glide path to the Fed’s inflation goal remains intact, but the timeline may be extended if core components prove resilient.
Adding to the context, the Commerce Department reported solid consumer spending in November, with personal consumption expenditures rising 0.4% for the month. This increase was driven largely by strong demand for both goods and services, suggesting underlying economic momentum remains intact despite higher interest rates. Consumer income also saw a healthy uptick, reinforcing the resilience of household balance sheets.
The Fed’s current policy stance reflects a balancing act—keeping rates high enough to ensure inflation continues its downward trajectory while avoiding overtightening that could stifle growth. November’s PCE data appear to support that balance. While not a green light for imminent rate cuts, the report bolsters the case for eventual easing, provided inflation continues to trend lower and the broader economy remains stable.
Financial markets have begun to price in potential rate cuts in the first half of 2025, though the exact timing remains uncertain. Investors and policymakers alike are watching for further signs that inflation is not only slowing but doing so in a durable and broad-based manner.
As the year draws to a close, November’s PCE report offers cautious optimism: inflation appears to be easing without derailing consumer activity or broader economic performance. While challenges remain, the data affirm that the Federal Reserve’s patient approach may be achieving its intended outcome—slowing inflation while preserving economic momentum.
