PCE Index Rose for Second Consecutive Month, Increasing Chance of Rate Hold in January

The Personal Consumption Expenditures (PCE) price index, which the Federal Reserve (Fed) considers the most important indicator when deciding interest rate levels, rose for the second consecutive month. This has led to analysis suggesting that the Fed is more likely to adjust the pace of rate cuts next year.

The Personal Consumption Expenditures (PCE) price index rose for the second consecutive month in November, increasing 2.4% year-on-year and 0.1% month-on-month, according to the U.S. Department of Commerce on the 20th. This increase was lower than the expert forecasts of a 2.5% rise in the PCE index and a 2.9% increase in the core PCE index.

The PCE index, which fell for five consecutive months from April to September this year, rebounded in October and rose again in November. However, the increase was lower than expected, providing relief to the market. According to the Chicago Mercantile Exchange (CME) FedWatch tool, there is an 89.3% chance that the Fed will hold rates steady in January next year. The probability of a 0.25 percentage point cut from the current benchmark rate (4.25~4.50% per annum) at the Federal Open Market Committee (FOMC) in March next year rose from 48.4% to 50% after the PCE index announcement.

The PCE index is considered the most important indicator by the Federal Reserve (Fed) when deciding interest rate levels. A higher-than-expected increase in the PCE index could lead to analysis suggesting that the Fed is more likely to adjust the pace of rate cuts next year.

The market is focusing on the impact of U.S. President-elect Donald Trump's tariff hikes and deregulation policies on U.S. inflation.