The US Federal Reserve's preferred inflation measure, the PCE price index, rose for the third consecutive month in December, but remained in line with expectations, leaving the door open for a potential rate cut by the Federal Reserve in the first half of the year.
The US Federal Reserve 's preferred inflation measure, the personal consumption expenditures ( PCE ) price index, accelerated for a third consecutive month in December, according to government data released on Friday. The PCE index rose 2.6 percent in the 12 months leading up to December, up from 2.4 percent in November, as reported by the Commerce Department.
This increase, aligning with the median forecasts of economists surveyed by Dow Jones Newswires and The Wall Street Journal, represents a 0.3 percent monthly rise in inflation.Stripping out volatile food and energy costs, the core PCE index, a measure often favored by the Federal Reserve, rose by 0.2 percent from the previous month and by 2.8 percent from a year ago. Chicago Fed President Austan Goolsbee expressed optimism about this figure in an interview with CNBC, stating, 'I'm liking this PCE number. It was expected, and it was even a little better than expected.' Market analysts echoed this sentiment, noting that the report, while indicating slightly higher inflation, remained consistent with expectations and wouldn't disrupt the anticipated narrative of a potential Fed rate cut in the first half of the year.Personal saving as a percentage of disposable personal income dipped slightly to 3.8 percent in December from 4.1 percent in November, suggesting that consumers saved a smaller portion of their earnings last month. This development comes as headline inflation has been trending away from the Federal Reserve's long-term target of 2 percent since September, posing challenges for policymakers at the US central bank. The Fed, tasked with managing both inflation and unemployment, primarily utilizes adjustments to short-term lending rates to influence borrowing costs for consumers and businesses. On Wednesday, the Fed unanimously voted to pause rate reductions following three consecutive cuts, maintaining the benchmark lending rate within the range of 4.25 and 4.50 percent. While headline inflation has increased, economic growth remains robust, and the labor market shows resilience, with the unemployment rate decreasing to 4.1 percent last month. Fed Governor Michelle Bowman emphasized the need for further progress in lowering inflation towards the 2 percent goal during a conference in New Hampshire on Friday. She stressed the importance of observing sustained progress in inflation reduction before considering further adjustments to the target range.However, President Donald Trump's threats to impose new tariffs on several US trading partners, potentially taking effect as early as this weekend, present a potential obstacle to the Fed's efforts to combat inflation. As Chicago Fed's Goolsbee pointed out, 'We've got a lot of policy uncertainty,' acknowledging that the Fed's signals can become 'muddied' when unforeseen events drive up prices. He stated, 'If it affects prices, it affects us.' The interplay of economic indicators, policy decisions, and global trade dynamics continues to shape the outlook for inflation and monetary policy in the United States
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