November PCE to Test Fed’s Patience as Inflation Stays Stubborn

Is Inflation Cooling or Holding Steady? November PCE Data Looms

Traders are gearing up for Friday’s release of the November Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge. The report is expected to show further cooling in price pressures, though inflation remains above the Fed’s 2% annual target—a hurdle for a more accommodative monetary policy in 2025.

What Are the Forecasts for the November PCE Report?

Economists expect the PCE price index to rise 0.2% on a monthly basis, matching October’s pace, according to FactSet. The core PCE index, which excludes food and energy, is also forecast to climb 0.2% in November, down from 0.3% gains in prior months.

On an annual basis, the headline PCE inflation rate is predicted to increase to 2.5% from 2.3% in October, while core PCE inflation is expected to rise to 2.9% year-over-year. Analysts attribute part of the uptick to base effects from weaker inflation readings last year, while the underlying data suggests gradual but uneven progress toward disinflation.

What Does This Mean for Fed Policy?

The Federal Open Market Committee (FOMC) implemented its third consecutive 0.25% rate cut this week, lowering the target range to 4.25%–4.5%. However, Fed Chair Jerome Powell indicated a slower pace of cuts in 2025, citing stubborn inflation and resilient economic growth.

The Fed remains cautious as inflation’s decline has been choppy since its peak of over 7% in mid-2022. Powell reaffirmed that further cuts would depend on continued progress in price stabilization. Traders should note the Fed’s January meeting could bring clarity as policymakers assess incoming data on inflation and employment.

How Does PCE Compare to CPI Data?

The November Consumer Price Index (CPI), released earlier this month, painted a similar picture of stalled progress. Both the CPI and core CPI rose 0.3% month-over-month, with annual rates climbing to 2.7% and 3.3%, respectively. Notably, inflation in housing costs—a major CPI component—showed signs of easing.

PCE, which weights housing costs less heavily than CPI, could provide a clearer signal on the broader inflation trend. Markets will be watching for whether the November PCE confirms CPI’s mixed signals or offers evidence of meaningful cooling.

What’s the Outlook for Markets?

The anticipated moderation in monthly PCE inflation suggests a cautiously bullish outlook for risk assets in the short term, as slower price growth strengthens the case for a measured Fed in 2025. However, with core inflation still sticky and labor market strength persisting, traders should remain vigilant for potential headwinds.

Friday’s PCE release will set the tone for year-end trading, influencing rate expectations, bond yields, and equity valuations. A clearer disinflation trend could provide support for stocks, while any signs of reaccelerating inflation may reignite concerns about tighter monetary policy.

More Information in our Economic Calendar.