The Balance Today: News You Need To Know on Dec. 1, 2022

Fed’s preferred measure of inflation rises less than expected

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A key measure of inflation rose less than expected in October from the month prior, giving another reason for us all to celebrate. The core Personal Consumption Expenditures (PCE) Price Index—which strips out volatile categories like food and fuel—rose 0.2% in October, lower than the 0.3% originally forecast. The PCE Price Index is the Federal Reserve’s preferred inflation gauge, and the more it declines, the less likely it is the Fed will hit us with another jumbo rate hike. The entire index, including food and fuel, rose 0.3%, in line with economist expectations.

Since October 2021, the index is up 6%, but has cooled from the rate of 6.3% that we saw in September. Spending was also up in October, as was disposable income. However, in a sign  that American households were starting to feel constrained, the personal savings rate fell to 2.3%, down from 2.4% the month prior. 

This is one of the most important pieces of economic data that policymakers at the central bank are keeping an eye on. And with PCE figures steadily cooling, it might be safe to say that inflation peaked several months ago and is slowly making its way back down. That means the Fed’s rate hikes are having an effect, but we are still a far way off from the 2% inflation target the Fed has set.

So while higher interest rates are most certainly still in our future, at least we can hope to avoid getting walloped by more jumbo rate hikes like those that have sent mortgage rates and credit card interest rates soaring. Yesterday afternoon, Fed Chair Jerome Powell remarked that it made sense to “moderate” the pace of rate hikes. That caused stocks to rally and investors to cheer that the central bank would take it a little easier on all of us going forward. 

But we aren’t out of the woods yet—we still have a jobs report out tomorrow, which could either raise fears that we might be headed for a recession, or indicate that the U.S. economy is still going strong, causing some to worry that the Fed might think we can handle higher rate hikes. Stocks are lower today to kick off the month of December.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Census Bureau. “Personal Income and Outlays, October 2022.”

  2. Board of Governors of the Federal Reserve. “Speech by Chairman Powell.”

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