Fed’s Inflation Gauge Shows Easing Price Pressures in November

What’s New

Inflation in the U.S. showed signs of cooling in November, with price increases slowing sharply after two months of higher-than-expected gains, according to a report released on Friday by the Commerce Department.

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The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose by just 0.1 percent from October to November, marking a significant deceleration compared to the 0.3 percent monthly increases seen in both September and October.

Why It Matters

These modest figures provide a welcome indication that inflationary pressures may be easing.

When excluding volatile food and energy prices, core inflation also climbed by only 0.1 percent, a notable slowdown from the previous months.

Why Is Inflation Cooling Down in the US?

The data comes just two days after the Federal Reserve’s unexpected announcement that it now intends to reduce its key interest rate only twice in 2025, down from its previous projection of four cuts.

The decision reflects concerns that inflation remains ‘stickier’ than anticipated.

What To Know

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Despite the positive news on inflation, the year-over-year inflation rate edged up slightly to 2.4 percent in November, compared to 2.3p percent in October, still above the Fed’s two percent target.

Core inflation, which strips out food and energy prices, held steady at 2.8 percent, in line with the Fed’s target for longer-term price stability.

The central bank closely monitors the core figure, as it is viewed as a better indicator of underlying price trends.

What Affect Will Easing Interest Rates Have?

The November inflation figures offer some support for the Fed’s recent decision to begin easing rates.

The PCE index, which the central bank favors over the more widely followed Consumer Price Index (CPI), is now closer to the Fed’s two percent target than the CPI.

The core CPI, for instance, was 3.3 percent in November, still far from the Fed’s desired inflation rate.

The report also revealed that consumer spending remained strong, rising 0.4 percent from October to November.

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This steady demand from households continues to fuel the economy, with recent government data showing a 3.1 percent annual growth rate in the third quarter, largely driven by consumer expenditures.

Why Does the Fed Remain Cautious?

Additionally, incomes grew by 0.3 percent in November, outpacing price increases and providing consumers with a cushion against higher costs.

Since reaching a peak of 7.2 percent in June 2022, inflation has steadily fallen, with the PCE index dropping to 2.1 percent by September.

The Fed’s strategy of raising borrowing costs has played a key role in cooling demand, but officials are still cautious about further progress on inflation.

At the Fed’s meeting this week, policymakers revised their inflation forecast for 2025, predicting it would hover around 2.5 percent by the end of that year, slightly above the current rate.

What People Are Saying

Fed Chair Jerome Powell said: “It’s way below where it was, but we really want to see more progress on inflation. As we think about further cuts, we’re going to be looking for progress.”

What Happens Next

While inflation is now well below its 2022 peak, the Fed remains cautious, with Powell reiterating that any future cuts in the central bank’s benchmark interest rate will be closely linked to sustained progress on inflation.

This article contains additional reporting from The Associated Press