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Pump Down the Pressure: Falling Gas Prices Lead to Easing Inflation
Inflation Slowdown Continues: Core PCE Falls, Boosting Hopes for a Soft Landing
Key Takeaways:
- Inflation Tumbles: The core personal consumption expenditures (PCE) index, a key gauge watched by the Fed, fell to 3.5% annualized in October, down from 3.7% the previous month.
- Energy Prices Dip: A 4.8% drop in energy prices from a year ago offset modest increases in goods and services costs.
- Housing Market Shows Signs of Cooling: Rent increases slowed significantly in November, and pending home sales fell to a record low.
- Fed Likely to Hold Steady: The Fed’s “beige book” report indicated a** slowdown in economic activity**, suggesting rates will remain on hold for now.
Deeper Dive:
- Headline PCE also moderated slightly, coming in at 3% year-over-year, down from 3.4% in September.
- This marks a significant decline from the 9.1% peak reached in June 2022, offering optimism about inflation’s trajectory.
- Economists are divided on the timing of future rate cuts, with some predicting they could start as early as mid-2024.
Market Reaction:
- Stocks have rallied on the back of easing inflation concerns and the potential for a** soft landing** scenario for the economy.
- Dow Jones Industrial Average futures were up over 200 points in pre-market trading.
Quotes:
- Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research: “After fears of “sticky” and “persistent” inflation, the month to month slowing in the core pce readings is encouraging.”
- Robert Frick, corporate economist at Navy Federal Credit Union: “This report hit the trifecta… These conditions are critical given the economy’s recent slowdown.”
- Lawrence Yun, chief economist at the National Association of Realtors: “Recent weeks’ successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory remains a challenge.”
- Curt Long, chief economist at the National Association of Federal Credit Unions: “The Fed’s latest beige book documents a downshifting in growth, with consumption and inflation slowing and the labor market coming into better balance. These conditions should allow for a rate cut in the first half of 2024.”
Conclusion:
While the inflation battle is far from over, the recent decline in core PCE and other positive economic indicators offer reasons for cautious optimism. The Fed’s next move will be closely watched, and its decision could have a significant impact on the economy and markets in the coming months.
Stay tuned for further updates on the evolving economic landscape and the Fed’s response to inflation.