If you’re looking for news on the US Dollar (USD) today, you’ve got plenty of options to choose from. There’s the PCE price index, which declined in December, adding to the pressure on the currency. On top of that, there’s a lot of talk about whether the Fed’s policy decision tomorrow will affect the economy.
PCE price index declines
The Federal Reserve’s preferred inflation gauge, the PCE price index, deflator, or the Personal Consumption Expenditures (PCE) measure, showed moderate growth in November. However, the PCE deflator’s most notable achievement was to show a decline in the month-over-month rate of inflation.
This is the first time that the PCE deflator has been in positive territory in a year. Since the beginning of the Fed’s rate hike campaign in March, the PCE rate has risen more than 6% annually.
While the PCE deflator’s omens are a bit light, the core PCE price index, which excludes volatile food and energy prices, is up more than 4% on a year-over-year basis. In terms of the month-over-month rate of increase, the Core PCE price index jumped 5% in October.
Investors wait for Fed’s policy decision on Wednesday
It’s time for investors to pay attention to the US Federal Reserve’s policy meeting on Wednesday, as the central bank is expected to raise its key interest rate by 0.50 percentage points. If the Fed does this, it would be the fourth rate hike this year. That’s one more than the market has been expecting.
The Fed’s decision will help set the stage for the next three rate hikes in 2022. Despite its recent record-setting rate hike, the central bank is still in the early stages of its fight against inflation.
The Fed’s monetary policy tightening is meant to counter the threat of persistently high inflation. But investors are unsure if the Fed will have enough wiggle room to keep prices stable.
The Fed raised its overnight rate by 0.75 percentage points in September and November. This was its most aggressive move since 1994. However, inflation has been slowing for two straight months, and consumer prices have been cooling. These signals may temper expectations for further rate hikes.
Consumer spending decreases 0.2% in December
Consumer spending in the United States declined 0.2 percent in December, according to the latest data from the Commerce Department. The report showed that household spending on goods was cut, a trend that has persisted for three quarters. However, it did show a small increase in services, led by health care.
The fall in consumer spending came as inflation cooled. Prices rose a bit less than expected, and a decrease in gasoline weighed on goods spending.
Inflation continues to be a major concern for the Federal Reserve, and it has tried aggressively to slow it. It has raised interest rates seven times in 2018, and it is on track to hike another quarter point next week.
Consumer spending is now on a slow growth base, but it will pick up again in the second half of the year. But the economy hasn’t quite turned around yet, and it is possible for a recession to develop during the second half of this year.
PCE price inflation falls to a 14-month low on an annual basis
The Federal Reserve’s preferred inflation measure, the PCE price index, showed moderate price increases in November. After a year of rapid and widespread price hikes for a variety of goods, PCE prices have peaked.
While the Fed will continue to raise its federal funds rate, it is concerned about the impact it will have on wage growth. The Fed’s long-term goal is for inflation to be no more than 2 percent. However, this target will likely be raised to 2.6 percent by the end of 2023.
Inflation has been the focus of the Fed’s efforts since the 1980s. Since then, policymakers have undertaken a series of interest rate hikes to tame inflation. But a series of factors have led to higher inflation than expected. Specifically, the price of energy has surged. This has affected transportation costs. It also contributed to a strong rise in food prices.
PCE price inflation might get worse before it gets better
The Federal Reserve’s preferred inflation measure, the PCE price index, showed moderate price increases in November. The index rose 5.5% from a year earlier and deflator prices were up 6.0% from the previous month.
However, the PCE inflation rate was just a tad lower than its predecessor, the core PCE, which was up 4.7% from a year ago. The Fed’s board of governors expects this indicator to end next year at 3.5%, versus the 4% level it had expected.
Although the CPI is the Federal Reserve’s preferred indicator, the PCE is an important one to watch. It strips out volatile energy and food prices and provides a better long-term inflation indicator.
While the PCE’s other gimmicks are probably not as big a deal, the persistence of shocks to the PCE is increasing. This is because, in the early 1980s, the Fed was tasked with reining in inflation that exceeded its stated target.