The Federal Reserve's primary inflation rate, tied to the core PCE price index, ticked higher in October, muddling prospects for a December rate cut. The S&P 500 was slightly lower after the release as investors processed the implications for the Fed outlook.
PCE Inflation Report Hits And Misses
The personal consumption expenditures, or PCE, price index rose 0.2%, below Econoday's 0.3% consensus forecast. The 12-month headline inflation rate picked up to 2.3% from 2.1%, matching estimates.
Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.3% in October, meeting forecasts. The 12-month core inflation rate picked up to 2.8% from 2.7%, also in line with estimates.
On an unrounded basis, the inflation details didn't look much more encouraging. The core PCE price index rose 0.273% on the month, which does look better than 0.3%. However, the 12-month inflation rate rose to 2.796% from 2.653%.
Core PCE inflation is running at a 2.8% annualized pace over the past three months, the highest since April. On a six-month annualized basis, core PCE inflation ran at a 2.34% rate, up slightly from 2.3% in September.
Personal Income, Spending
The PCE price index is part of the Commerce Department's monthly personal income and outlays report. Personal income rose 0.6% vs. 0.3% forecasts.
Personal consumption expenditures climbed 0.4% in October, in line with estimates.
Federal Reserve Rate-Cut Outlook
After the PCE inflation report, markets were pricing in 66.5% odds of a quarter point rate cut on Dec. 18, according to CME Group's FedWatch tool. Those odds moved up from 59% on Tuesday.
Still, next week's November jobs report could influence the prospects of another rate cut this year, as well as the outlook for 2025.
S&P 500
After the PCE inflation report, the S&P 500 dipped 0.3% in early Wednesday stock market action. On Tuesday, the S&P 500 rose 0.6% to a record closing high.
The S&P 500 is up 26.2% for the year as of Nov. 26.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
