Inflation bumps return, to policymakers' dismay
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The year began with fears about stubborn inflation. The latest data shows that concern is back as 2024 comes to an end.
Why it matters: Inflation was trending down for months, allowing the Federal Reserve to loosen its grip on the economy as a soft landing looked to be in sight.
- Now that appears more muddled: The economic momentum remains, but inflation looks stuck at levels far below the peak — yet still too high for policymakers' comfort.
What they're saying: "The last mile towards price stability has been stymied by still 'sticky' inflation and bumps along [the] road," Quincy Krosby, chief global strategist at LPL Financial, wrote in a note.
By the numbers: The Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, rose by 0.2% in October for the second straight month, the government said Wednesday morning.
- The core measure that excludes food and energy rose 0.3%.
- From the same month a year ago, PCE rose 2.3%, compared to the 2.1% increase in September.
- Core PCE rose by 2.8% — a tick higher than the previous month.
- Over the last three months, core PCE rose at a 2.8% annualized rate, compared to the 2.4% rate in September.
The big picture: The data came alongside indicators pointing to a healthy economy with steady consumer demand.
- Personal consumption expenditures, a measure of consumer spending, rose by 0.4% — a slight pullback from September's 0.6% pace.
- That was likely fueled by stronger income gains: Disposable income jumped by 0.7% — 0.4 percentage points higher than the prior month.
- As a result, consumers saved 4.4% of their income, up from 4.1% in September.
Separate data reaffirmed the economy's momentum. GDP increased at an annualized 2.8% in the third quarter, unchanged from the initial estimate. Stronger business investment offset weaker consumer spending.
- Unemployment filings, meanwhile, fell to the lowest level since late April last week — a sign that the labor market continues to chug along.
Between the lines: Minutes from the Fed's latest policy meeting Nov. 6-7 showed officials were still confident that inflation was falling back to the 2% target.
- But "a couple noted that the process could take longer than previously expected," the minutes showed.
- Many officials said that the risk of too much labor market cooling had "diminished somewhat" since September.
- Officials also raised the possibility that the Fed could "pause" rate cuts if inflation remained elevated. On the flip side, it could speed up cuts if economic activity faltered.
What to watch: Two events next week might clarify how the Fed views the current outlook for monetary policy.
- Fed chair Jerome Powell will speak at a conference hosted by the New York Times on Wednesday. The November jobs report will be released two days later.
