The Fed's preferred inflation measure is TKTK

Inflation continued to slow in October.

The personal consumption expenditures (PCE) index grew 3% year-on-year during the month, down from 3.4% in September and in line with expectations. The “core” PCE index, which excludes volatile food and energy categories, grew 3.5%, down from 3.7% from the previous month, in line with what economists polled by Bloomberg expected.

On a monthly basis, the core personal consumption expenditures index rose 0.2% in October, down from 0.3% in September.

Core personal consumption expenditures are the measure of inflation mentioned most often by Federal Reserve Chairman Jerome Powell and are therefore closely watched by investors. Ahead of the print edition, markets raised bets on the possibility of the Fed raising interest rates as economic data recently showed inflation falling while the economy continued to grow.

These moves coincided with recent comments from Federal Reserve officials that investors interpreted as meaning the central bank could cut interest rates sooner than many initially thought.

“I feel more clear about some important trends. One is the direction of inflation. There is no question that the rate of inflation has slowed meaningfully over the past year-plus,” Atlanta Fed President Rafael Bostic said. In an article published Wednesday.

As of Wednesday, markets were anticipating a 78% chance of a rate cut by the end of the Fed’s May meeting. A month ago, markets had estimated the probability of a cut at only 41% in the same time period. According to CME FedWatch.

Thursday’s PCE release is in line with what investors had already digested earlier this month from another popular inflation measure, the Consumer Price Index (CPI). On November 14, the CPI reading showed headline inflation falling at its lowest pace since September 2021.

US Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the Fed’s policy decision to leave interest rates unchanged, at the Federal Reserve Bank in Washington, US, September 20, 2023. REUTERS/Evelyn Hochstein (Evelyn Hochstein/Reuters)

Josh Schaeffer is a reporter for Yahoo Finance.

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