Economic data released Friday showed the Fed's preferred inflation gauge eased slightly in September, while early December readings pointed to a rebound in consumer sentiment as inflation expectations cooled.
The Bureau of Economic Analysis published the delayed September Personal Income and Outlays report, pushed back several weeks due to the government shutdown.
- The headline Personal Consumptions Expenditure (PCE) price index rose 2.8% year over year in September, the highest since August 2024 and in line with forecasts.
- Monthly inflation advanced 0.3%, matching August's pace and expectations.
- Core PCE, the inflation metric the Fed tracks most closely, slowed from 2.9% to 2.8%, coming in just below expectations for 2.9%.
- Core prices rose 0.2% month over month, as expected.
- Consumer spending increased $65.1 billion, or 0.3%, in line with forecasts and down from 0.5% in August.
- Gasoline and other energy goods saw the biggest gain, up $17.2 billion, followed by housing and utilities, up $15.4 billion.
- Motor vehicles and parts posted the largest drop at $7.4 billion.
- Personal income rose $94.5 billion, or 0.4%, beating expectations for 0.3%, with rising compensation and income receipts on assets driving the increase.
Consumer Sentiment Rebounds In Early December
Preliminary December data from the University of Michigan showed consumer sentiment edging up from 51.0 in November to 53.3, marking a 4.5% monthly gain. Expectations improved sharply, rising from 51.0 to 55.0, while assessments of current conditions slipped slightly.
However, sentiment remains deeply depressed compared to December 2024, when the index stood at 74.0—a 28% year-over-year decline.
Joanne Hsu, director of the Surveys of Consumers, said the modest gain was "concentrated primarily among younger consumers" and driven by a 13% jump in expected personal finances.
Still, she noted the overall tone remains subdued: "Consumers continue to cite the burden of high prices."
While inflation expectations slightly cooled from November’s readings, consumers continue to expect the inflation rate 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%.
Short- and long-run inflation expectations have declined for four straight months but remain above earlier-year levels, and uncertainty over both time horizons remains elevated.
Market Reactions
Investors continue to see strong odds of a rate cut next week, with the CME FedWatch tool pricing an 87% chance of a quarter-point move.
Stocks pushed higher 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 (NYSE:VOO) – now trades at a just 0.2 percentage points below record highs previously hit in late October.
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