Inflation fell three-tenths of a percentage point to 6% annually in October, as measured by the gauge favored by the Federal Reserve.
The decline in the personal consumption expenditures price index reported Thursday morning by the Bureau of Economic Analysis is a sign that inflationary pressures are abating in the face of the Fed’s campaign to slow price gains by raising inflation rates. Nevertheless, inflation is still running much faster than the central bank’s target and hurting household purchasing power.
The latest inflation measures are “well above target and support a move up in rates into restrictive territory,” wrote Rubeela Farooqi, the chief U.S. economist for High Frequency Economics.
Core PCE inflation, a measure of inflation that strips out energy and food prices and is generally less volatile, slowed two-tenths of a percentage point to a 5% year-over-year rate. The Fed’s target is a 2% rate.
The report is the last major inflation report before the Fed meets next week to decide how much to hike interest rates.
The central bank has been tightening monetary policy at a dramatic pace in a desperate bid to bring down the inflation that has hit households hard and damaged President Joe Biden’s ratings.
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Earlier this month, the central bank conducted another huge three-quarters-of-a-percentage-point, or 75 basis points, rate increase. It was the fourth such increase in just five months — the largest hike in four decades. Since the start of the year, the Fed has ratcheted up rates by 375 basis points.
Fed Chairman Jerome Powell said during a speech on Wednesday that while he thinks the Fed will need to continue raising rates, it may decide to scale back the size of the hikes as soon as next week.
“The full effects of our rapid tightening so far are yet to be felt,” Powell said. “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.”
“The time for moderating the pace of rate increases may come as soon as the December meeting,” he added. Stocks rose in response to his remarks.
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Investors are now pegging the odds of a 50 basis point hike at nearly 80% and pricing in less than a 25% chance of a 75 basis point hike, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
