According to recent data from the US Bureau of Economic Analysis, November saw a 2.6% annual increase in the Personal Consumption Expenditures (PCE) Price Index, a slight dip from October’s revised 2.9%. This figure fell short of the anticipated 2.8% mark. Meanwhile, the Core PCE Price Index, which omits the impact of volatile food and energy costs, moderated to a 3.2% annual rise, down from October’s 3.4%. On a monthly comparison, the overall PCE Price Index showed a marginal 0.1% decrease, whereas the Core PCE Price Index saw a modest 0.1% uptick.
Market Response to US PCE Inflation Figures:
The latest data doesn’t appear to be exerting a pronounced influence on the US Dollar’s (USD) standing relative to key counterparts. As of the current update, the USD Index showed a marginal decline of 0.13% for the day, settling at 101.65.
Market Speculation and Dollar Vulnerability Amidst PCE Index Forecasts
In November, the Core Personal Consumption Expenditures Price Index is projected to experience a monthly increase of 0.2% and an annual growth of 3.3%. Given these forecasts, there is growing speculation within the markets about the Federal Reserve potentially reducing the policy rate by March. Furthermore, with the ongoing moderation in PCE inflation, there are concerns that the US Dollar’s stability may be compromised, leaving it susceptible to further weakness.
Anticipating Insights from the Federal Reserve’s KeyInflation Report
The Core PCE Price Index, excluding food and energy, is pivotal for the Fed’s inflation stance. Expected to rise 0.2% in November, its annual growth is forecasted at 3.3%, a slight dip from October’s 3.5%. Meanwhile, the headline PCE Price Index is anticipated to remain unchanged monthly but grow 2.8% annually.
Following the December policy meeting, Fed Chair Jerome Powell highlighted the Fed’s estimates: total PCE prices rose 2.6% over the past year, with core prices up by 3.1%. Powell’s hint at potential rate cuts surprised the market, leading to a drop in US Treasury yields and a weakened US Dollar. Despite the Fed’s cautionary stance, market indicators suggest an 80% chance of a rate cut in March, as per CME Group’s FedWatch Tool.
TD Securities analysts anticipate a significant slowdown in November’s core PCE inflation, contrasting with the core CPI. They also project a rise in consumer spending for Q4, especially noting a robust November increase.
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