Core PCE Inflation Falls Below Fed’s 2.0% Target

Yields oscillate while equities clinch an 8th straight weekly advance. This morning’s data showed that annualized core inflation was slightly below the Fed’s 2.0% target, supporting rate-cutting expectations for 2024 that were largely priced into markets. Yields jumped briefly after the release, with the 2-year up ~5bps to ~4.37% and the 10-year up ~3bps to ~3.88%, reversed course shortly thereafter, and then steadily recovered throughout the afternoon. The 2-year ended the day roughly flat, while the 10-year ended ~5bps higher at ~3.90%. Stocks climbed immediately following the inflation data but weakened during afternoon trading. Still, the S&P logged an 8th straight week of gains, the longest weekly stretch in over 5-years.  

Core PCE inflation falls below 2.0%. On an annualized basis, 6-month core PCE rose 1.9%, the first time in over 3-years that the measure was below the Fed’s 2.0% target level. On a YoY basis, core inflation declined from 3.4% in October to 3.2% in November. Today’s releases also included personal spending and income data, which both showed robust gains. Personal income, a key driver of spending, rose 0.4% MoM. Overall, the results were positive for traders betting on rate cuts as early as March and the Fed which seeks sustained deflation coupled with resilient consumer demand and economic growth.

US new-home sales decline to a 1-year low. Sales of new homes in the US unexpectedly fell 12.2% to a 590,000 annual pace in November. Leading the dip was a 21% decline in the South, with sales falling to the lowest level since April 2020, as well as a decline in the West. The data complicates positivity around the outlook for housing market recovery driven by elevated homebuilder sentiment and housing starts data earlier this week.  

Caution defines 2023 holiday spending. Even as consumer wallets remain strong, the rising cost of everyday items meant consumers were more frugal during this year’s holiday spending season. In a survey conducted by investing platform M1, 20% of American consumers said they will spend less on travel, 43% said they will spend less on luxury items and 30% said they will spend less on restaurants and dining compared to 2022. As we all navigate higher prices, the team at Derivative Path wishes you a happy and healthy holiday!