Fed's Favorite Inflation Gauge Holds Steady, Policy Unchanged

The U.S. December Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, rose 0.2% month-over-month (MoM), in line with market expectations. This reading suggests that inflationary pressures remain relatively subdued, which could influence the Fed's monetary policy decisions in the coming months.

The Core PCE Price Index, which excludes volatile food and energy prices, has been relatively stable in recent months. The 0.2% MoM increase in December follows a 0.1% rise in November and a 0.2% increase in October. This consistency in the inflation data may lead the Fed to maintain its current monetary policy stance, focusing on supporting economic growth while keeping inflation in check.

The Core PCE Price Index also rose 2.8% year-over-year (YoY) in December, matching market expectations and remaining within the Fed's 2% target range. This YoY increase is the third consecutive month that the index has stayed within the target range, indicating that inflation is under control and aligned with the Fed's objectives.

The release of the PCE data has not significantly impacted short-term interest rate futures, with traders still expecting the Fed to cut rates in June. This expectation reflects the market's view that the Fed will continue to prioritize supporting economic growth over raising interest rates to combat inflation.

The PCE data release comes as the Fed is set to conclude its two-day policy meeting on January 31. While the Fed is not expected to make any changes to its monetary policy at this meeting, the PCE data could influence the Fed's future policy decisions, particularly if inflation remains relatively stable or shows signs of slowing down.