Fed's favored inflation gauge showed consumer price growth remained elevated in December

• PCE index rose 0.4% monthly and 2.9% annually in December, both above economist estimates of 0.3% and 2.8%
• Core PCE increased 0.4% monthly and 3% yearly, surpassing expectations of 0.3% and 2.9% respectively
• The hotter-than-expected inflation data suggests price pressures remain stubborn, complicating the Fed's path toward its 2% inflation target

Summary: December PCE Inflation Report

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, showed persistent price pressures in December, exceeding economist expectations across all metrics.

Key Data Points:

Headline PCE:

• Monthly increase: 0.4% (vs. 0.3% expected)
• Annual increase: 2.9% (vs. 2.8% expected)

Core PCE (excluding food and energy):

• Monthly increase: 0.4% (vs. 0.3% expected)
• Annual increase: 3.0% (vs. 2.9% expected)

Market Implications:

The hotter-than-expected inflation data presents a challenge for the Federal Reserve's monetary policy strategy. Core PCE remains a full percentage point above the Fed's 2% inflation target, suggesting price pressures continue to be more persistent than anticipated.

These figures indicate that inflation is proving stickier than forecasters predicted, which could influence the Fed's decision-making on interest rate policy. The elevated readings may limit the central bank's flexibility to cut rates in the near term, as policymakers seek to ensure inflation is sustainably moving toward their target.

Context:

The PCE index is the Fed's preferred inflation measure, making this data particularly significant for monetary policy decisions. The continued elevation in both headline and core measures underscores ongoing challenges for American consumers dealing with higher prices.

The report's timing comes as markets evaluate the Fed's future policy path and assess whether the central bank will maintain its restrictive stance or begin easing monetary conditions in 2024.