Sticky US Inflation Data Dashes Near-Term Fed Rate Cut Hopes

Delayed inflation reports released by the US Commerce Department indicate that price pressures remain stubbornly high, effectively taking a near-term interest rate cut off the table for the Federal Reserve.

• Monthly PCE Increase: 0.2%
• Annual Inflation (Oct/Nov): 2.7% / 2.8%
• Fed Target vs Current: 2% vs ~3%
• Unemployment Rate: 4.4%

PCE Data Highlights Persistence

The Personal Consumption Expenditure (PCE) price index—the Federal Reserves preferred inflation gauge—rose 0.2% month-on-month for both October and November.

On an annualized basis, inflation ticked up to 2.7% in October and expanded further to 2.8% in November. This data underscores a challenging reality: while inflation has receded from its post-pandemic peaks, it remains comfortably above the Feds 2% target.

A troubling resurgence in goods inflation, exacerbated by tariff policies implemented earlier in the year, is counteracting the disinflationary trends seen in 2022.

Economic Divergence and Policy Outlook

Despite the headwinds, US consumption has shown resilience, largely driven by affluent households. However, cracks are appearing in the broader economy.

Real disposable personal income dipped 0.1% in October and posted a meager 0.1% recovery in November, signaling that inflation is continuing to erode purchasing power for the average consumer.

Given the labor market's historic tightness—unemployment stands at 4.4%—and the persistent inflation readings, market consensus has shifted.

Traders now expect the Fed to hold rates steady at next week's policy meeting. As long as inflation hovers near 3%, policymakers are likely to prioritize price stability over easing, regardless of political pressure regarding the transition of the Fed Chairmanship.