Fed's preferred inflation gauge ticks up, denting rate-cut hopes: ‘Economy remains on a solid footing'

• Both overall and core inflation increased to 2.8% year-over-year in November, though monthly gains were modest at 0.2%
• Consumer spending climbed 0.5% in November, indicating robust economic growth heading into year-end
• Economists suggest the Fed has 'little urgency' to cut rates next week given solid economic footing and inflation remaining above the 2% target

Summary

The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures (PCE) index, rose 2.8% year-over-year in November, up from 2.7% in October, according to Commerce Department data. Core inflation, excluding food and energy, also climbed to 2.8% from 2.7% the previous month. Monthly price increases were more moderate at 0.2% for both headline and core inflation.

Consumer spending showed strength, rising 0.5% month-over-month in November, signaling robust economic growth in the fourth quarter of 2025. This follows a separate report indicating the economy expanded at its fastest pace in two years during the July-September quarter.

Market Implications: The uptick in inflation reduces the likelihood of a Federal Reserve interest rate cut at its upcoming meeting next week. Edward Jones economist James McCann noted the data "should reassure the Fed that the economy remains on a solid footing," suggesting "little urgency to cut rates" and the possibility the central bank could "stay on hold for longer" if growth remains robust and inflation stays above the Fed's 2% target.

While inflation has declined significantly from its four-decade peak in June 2022, it remains elevated above the Fed's target. The labor market presents a mixed picture, with hiring slowing considerably even as the broader economy demonstrates resilience.

Key Takeaway: Strong consumer spending combined with sticky inflation creates a challenging environment for rate cut expectations, likely keeping monetary policy tighter for an extended period as the Fed balances growth against persistent price pressures.