Core inflation in the United States continued to cool in October, with moderate consumer spending, which is good news for the Federal Reserve.

On Thursday at 21:30 Beijing time, the U.S. October core PCE price index annual rate recorded 3.5%, the lowest since April 2021, in line with the expected 3.5%, and the previous value was 3.7%. The U.S. October core PCE price index monthly rate recorded 0.2%, consistent with expectations, with the previous value at 0.3%. The U.S. October personal spending monthly rate recorded 0.2%, in line with expectations, with the previous value at 0.7%. At the same time, the number of initial jobless claims in the United States as of November 25 recorded 218,000 people, lower than the expected 220,000 people, and increased from the previous value of 209,000 people.

After the data was released, spot gold fell by $5 in the short term, then rebounded. The US dollar index rose by 15 points in the short term.

Core PCE is the Federal Reserve's most favored inflation indicator and is closely watched by investors. Before the release of this report, the market had increased bets that the Federal Reserve may no longer raise interest rates. Short-term interest rate futures traders now expect the Federal Reserve to keep interest rates unchanged before the March meeting next year and start cutting rates from May.

Advertisement

U.S. consumer spending in October decreased compared to the previous month, indicating that the U.S. economy is shifting into a deceleration gear. Personal spending data is in line with market expectations, which means that after experiencing the strongest growth in nearly two years, the U.S. economy will slow down in the fourth quarter. Cooling demand may also help policymakers believe that inflationary pressures will continue to weaken, thereby strengthening the expectation that the Federal Reserve has ended interest rate hikes.

In addition, the financial website Forexlive commented on the U.S. initial jobless claims data, saying that earlier this year, the number of initial jobless claims remained stable/slightly increased, but the number of continued jobless claims decreased, indicating that people found jobs after being unemployed. However, now the number of continued jobless claims is increasing, indicating that the unemployed have not found jobs. Therefore, the job market is becoming weaker. The number of continued jobless claims has risen to the highest level since November 2021.

The latest PCE and personal spending data can provide important insights for Federal Reserve officials at the last meeting of 2023, which will be held on December 12-13. Although investors have widely expected policymakers to keep borrowing costs unchanged at the meeting, the central bank will also release new economic forecasts at that time, which may imply the future interest rate path.

Policymakers have been closely monitoring the trends in inflation and consumer spending to assess the next steps. As interest rates have already been raised to a 20-year high of 5.25% to 5.5%, many officials have indicated that it may be time to stop and observe how the policy works.

However, the economy's resistance to rising borrowing costs is stronger than many people expected, which keeps some Federal Reserve officials on alert. If strong demand enables companies to continue raising prices without losing customers, it may be more difficult to completely eliminate inflation.

San Francisco Fed Chairman Daly said after the release of the PCE data that the latest inflation data is "encouraging," but "we cannot declare victory too early." It is premature to judge whether the Federal Reserve has ended interest rate hikes, and he insists that there is no consideration of rate cuts at present. Traders have reduced bets on the amount of rate cuts in 2024 after hearing the news.Federal Reserve Governor Waller said earlier this week: "Based on the available data, the early signs of a slowdown in economic activity in the fourth quarter are encouraging." However, he added, "Inflation is still too high, and it is too early to determine whether the economic slowdown we are seeing will continue."