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Fed's Preferred Inflation Gauge Eases While Consumer Confidence Shows Signs of Life

MarketDash Editorial Team
3 days ago
Core PCE inflation ticked down to 2.8% in September, coming in slightly below expectations, while consumer sentiment bounced back in early December despite lingering concerns about high prices.

Friday brought a mixed bag of economic signals that probably gave Federal Reserve officials plenty to chew on heading into next week's policy meeting. Inflation pressures showed signs of easing in September, while consumers appear to be feeling a bit better about things in December—though "better" is relative when you're still complaining about high prices.

The Bureau of Economic Analysis finally released September's Personal Income and Outlays report, delayed for weeks thanks to the government shutdown. Here's what the numbers showed:

  • Headline Personal Consumption Expenditure (PCE) inflation hit 2.8% year-over-year, the highest reading since August 2024 and right in line with what economists expected.
  • Month-over-month inflation came in at 0.3%, matching both August's pace and forecasts.
  • Core PCE—the metric the Fed watches most closely because it strips out volatile food and energy prices—slowed from 2.9% to 2.8%. That came in just a tick below the 2.9% consensus.
  • Core prices rose 0.2% month-over-month, exactly as expected.
  • Consumer spending increased $65.1 billion, or 0.3%, matching forecasts but cooling from August's 0.5% pace.
  • Gasoline and other energy goods led spending gains with a $17.2 billion jump, followed by housing and utilities at $15.4 billion.
  • Motor vehicles and parts saw the biggest decline, dropping $7.4 billion.
  • Personal income climbed $94.5 billion, or 0.4%, beating the 0.3% forecast thanks to stronger compensation and income from assets.

Consumers Are Feeling Slightly Less Miserable

The University of Michigan's preliminary December survey showed consumer sentiment inching up from 51.0 in November to 53.3, a 4.5% monthly improvement. Future expectations jumped from 51.0 to 55.0, while current conditions assessments slipped a bit.

Before you break out the champagne, though, consider this: sentiment remains deeply depressed compared to December 2024, when the index sat at 74.0. That's a 28% year-over-year decline.

Joanne Hsu, who directs the Surveys of Consumers, noted the modest improvement was "concentrated primarily among younger consumers" and fueled by a 13% surge in expected personal finances.

But the overall mood remains gloomy. "Consumers continue to cite the burden of high prices," Hsu said.

Inflation expectations did cool somewhat from November's readings, though they're still running well above the Fed's 2% target. The year-ahead measure dropped from 4.5% to 4.1%, the lowest since January. Five-year inflation expectations declined from 3.4% to 3.2%.

Both short- and long-term inflation expectations have fallen for four consecutive months, but they remain elevated compared to earlier this year, and uncertainty around both measures is still running high.

What Markets Are Thinking

Investors remain confident the Fed will cut rates next week, with the CME FedWatch tool showing an 87% probability of a quarter-point reduction.

Stocks climbed Friday, with major Wall Street indices up roughly 0.5% in early New York trading.

The S&P 500—tracked by the Vanguard S&P 500 ETF (VOO)—was trading just 0.2 percentage points below the record highs it hit in late October.

Back to News

Fed's Preferred Inflation Gauge Eases While Consumer Confidence Shows Signs of Life

MarketDash Editorial Team
3 days ago
Core PCE inflation ticked down to 2.8% in September, coming in slightly below expectations, while consumer sentiment bounced back in early December despite lingering concerns about high prices.

Friday brought a mixed bag of economic signals that probably gave Federal Reserve officials plenty to chew on heading into next week's policy meeting. Inflation pressures showed signs of easing in September, while consumers appear to be feeling a bit better about things in December—though "better" is relative when you're still complaining about high prices.

The Bureau of Economic Analysis finally released September's Personal Income and Outlays report, delayed for weeks thanks to the government shutdown. Here's what the numbers showed:

  • Headline Personal Consumption Expenditure (PCE) inflation hit 2.8% year-over-year, the highest reading since August 2024 and right in line with what economists expected.
  • Month-over-month inflation came in at 0.3%, matching both August's pace and forecasts.
  • Core PCE—the metric the Fed watches most closely because it strips out volatile food and energy prices—slowed from 2.9% to 2.8%. That came in just a tick below the 2.9% consensus.
  • Core prices rose 0.2% month-over-month, exactly as expected.
  • Consumer spending increased $65.1 billion, or 0.3%, matching forecasts but cooling from August's 0.5% pace.
  • Gasoline and other energy goods led spending gains with a $17.2 billion jump, followed by housing and utilities at $15.4 billion.
  • Motor vehicles and parts saw the biggest decline, dropping $7.4 billion.
  • Personal income climbed $94.5 billion, or 0.4%, beating the 0.3% forecast thanks to stronger compensation and income from assets.

Consumers Are Feeling Slightly Less Miserable

The University of Michigan's preliminary December survey showed consumer sentiment inching up from 51.0 in November to 53.3, a 4.5% monthly improvement. Future expectations jumped from 51.0 to 55.0, while current conditions assessments slipped a bit.

Before you break out the champagne, though, consider this: sentiment remains deeply depressed compared to December 2024, when the index sat at 74.0. That's a 28% year-over-year decline.

Joanne Hsu, who directs the Surveys of Consumers, noted the modest improvement was "concentrated primarily among younger consumers" and fueled by a 13% surge in expected personal finances.

But the overall mood remains gloomy. "Consumers continue to cite the burden of high prices," Hsu said.

Inflation expectations did cool somewhat from November's readings, though they're still running well above the Fed's 2% target. The year-ahead measure dropped from 4.5% to 4.1%, the lowest since January. Five-year inflation expectations declined from 3.4% to 3.2%.

Both short- and long-term inflation expectations have fallen for four consecutive months, but they remain elevated compared to earlier this year, and uncertainty around both measures is still running high.

What Markets Are Thinking

Investors remain confident the Fed will cut rates next week, with the CME FedWatch tool showing an 87% probability of a quarter-point reduction.

Stocks climbed Friday, with major Wall Street indices up roughly 0.5% in early New York trading.

The S&P 500—tracked by the Vanguard S&P 500 ETF (VOO)—was trading just 0.2 percentage points below the record highs it hit in late October.

    Fed's Preferred Inflation Gauge Eases While Consumer Confidence Shows Signs of Life - MarketDash News