Inflation cooled to a 3% annual rate in October, as measured by the gauge favored by the Federal Reserve, declining 0.4 percentage points from the previous reading.
The slowdown in the personal consumption expenditures price index reported Thursday morning by the Bureau of Economic Analysis is some good news as the Fed works to vanquish inflation by hiking interest rates. The consensus among economists was that PCE inflation would fall to 3.1%.
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Still, inflation is running above the Fed’s goal of 2% annual price growth. But the report shows progress is being made and is also a welcome development for the Biden administration, which has worked to tout positive economic developments, such as low unemployment and strong economic growth, as evidence that the “Bidenomics” agenda is working.
Core PCE inflation, a measure of inflation that strips out volatile energy and food prices, fell to a 3.5% year-over-year rate.
While PCE is the Fed’s preferred inflation gauge, the more commonly cited headline number is the consumer price index. Inflation was clocking in at 3.2% in October in the CPI.
Inflation has fallen dramatically from its zenith in the summer of 2022. But despite the Fed’s historic rate hikes, other economic indicators have held up surprisingly well. For instance, GDP growth has remained positive and even accelerated despite the fact that rate hikes are meant to slow commerce.
A new revision to the third quarter GDP projections released on Wednesday showed that economic growth expanded at a 5.2% seasonally adjusted annual rate in the third quarter of this year, the strongest growth since the pandemic rebound and, before that, 2014.
The labor market, while recently showing signs of softening, is notching positive employment gains. The economy added 150,000 jobs in October.
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The Fed’s next meeting is set for mid-December. Most Fed watchers think the central bank will hold its target rate steady at 5.25% to 5.50%.
Investors now see a 96% probability that the Fed will not hike rates at this meeting, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.