Key Inflation Gauge Subsides to 2.4% in November

Monthly inflation subsided in November after showing little improvement in recent months. The personal consumption expenditures (PCE) price index rose 0.1% last month after an unrevised 0.2% gain in October.

In the 12 months through November, the PCE price index advanced 2.4% after rising 2.3% in October. The increase in the annual inflation rate was partly due to last year's low readings dropping out of the calculation.

Excluding the volatile food and energy components, the PCE price index climbed 0.1%, after an unrevised 0.3% gain in October. In the 12 months through November, the so-called core inflation increased 2.8% after advancing by the same margin in October.

The Fed tracks the PCE price measures for its 2% inflation target. It hiked its policy rate by 5.25 percentage points between March 2022 and July 2023.

CONSUMER SPENDING UP

U.S. consumer spending increased in November, underscoring the economy's enduring strength, which prompted the Federal Reserve this week to project fewer interest rate cuts in 2025 than it had three months ago.

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Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month after a downwardly revised 0.3% gain in October, the Commerce Department's Bureau of Economic Analysis reported on Friday.

Economists polled by Reuters had forecast consumer spending advancing 0.5% after a previously reported 0.4% rise in October. Robust consumer spending helped to propel the economy to a 3.1% annualized growth rate in the third quarter after a 3.0% pace of expansion in the April-June quarter.

Economists are expecting only a modest slowdown in consumer spending this quarter after it surged at a 3.7% pace in the July-September quarter, the fastest in 1-1/2 years.

The Atlanta Federal Reserve is currently forecasting gross domestic product increasing at a 3.2% rate in the fourth quarter. Fed Chair Jerome Powell on Wednesday described the economy as having "just been remarkable," adding "I feel very good about ... the performance of the economy and we want to keep that going."

RESILIENT ECONOMY

The U.S. central bank on Wednesday cut its benchmark overnight interest rate by 25 basis points to the 4.25%-4.50% range. It forecast only two rate reductions in 2025, in a nod to the economy's continued resilience and still-high inflation.

In September, Fed officials had forecast four quarter-point rate cuts next year. The shallower rate cut path in the latest projections also reflected uncertainty over policies from President-elect Donald Trump's incoming administration, including tariffs on imported goods, tax cuts and mass deportations of undocumented immigrants, which economists have warned would be inflationary.

Labor market stamina, marked by low layoffs and strong wage growth are underpinning consumer spending. Strong household balance sheets, reflecting high stock market and home prices are also driving spending. Household savings remain supportive.

Economists, however, cautioned that middle- and higher-income households were the ones mostly benefiting from the wage gains and wealth effects, noting that lower-income consumers were under financial pressure.