US November Personal Consumption Index Rises 2.4%... Fed Likely to Adjust Rate Cut Pace

Increase larger than previous month's 2.3%

89% chance of rate hold in January

The Personal Consumption Expenditures (PCE) price index, which the Federal Reserve (Fed) considers the most important indicator when deciding interest rate levels, rose for the second consecutive month. This has led to analysis suggesting that the Fed is more likely to adjust the pace of rate cuts next year.

The U.S. Department of Commerce announced on the 20th that the PCE index in November rose 2.4% year-on-year and 0.1% month-on-month. Service prices rose 0.2% from the previous month, leading to an overall increase. The core PCE index, excluding volatile energy and food prices, rose 2.8% year-on-year. Both indices slightly missed the expert forecasts compiled by financial information company FactSet (PCE up 2.5%, core PCE up 2.9%).

The PCE index, which fell for five consecutive months from April to September this year, rebounded in October and rose again in November. However, the increase was lower than expected, providing relief to the market. According to the Chicago Mercantile Exchange (CME) FedWatch tool, there is an 89.3% chance that the Fed will hold rates steady in January next year. The probability of a 0.25 percentage point cut from the current benchmark rate (4.25~4.50% per annum) at the Federal Open Market Committee (FOMC) in March next year rose from 48.4% to 50% after the PCE index announcement.

Mary Daly, President of the Federal Reserve Bank of San Francisco, said in an interview with Bloomberg TV that she feels "very comfortable with the policy decision of two rate cuts next year." She added, "There will be far fewer rate cuts next year than we thought," and "we will monitor the economic situation to see if (the pace of rate cuts) is appropriate."

The market is focusing on the impact of U.S. President-elect Donald Trump's tariff hikes and deregulation policies on U.S. inflation.

Reporter Hankyung hankyung@hankyung.com