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The Fed’s Preferred Inflation Indicator Declined to 3.5%

Miguel A. Rodriguez
Miguel A. Rodriguez
01 December 2023

As expected, the release of the US Personal Consumption Expenditures (PCE) price index yesterday showed a decline to 3.5% annually and 0.2% monthly. Continue reading to find out more about this and the results of the OPEC+ meeting below. 

US PCE Shows Rate Hikes Are Working to End Inflation

Sessions at the end of a month are usually high in volatility due to market flows from portfolio adjustments, and this was the case yesterday. This volatility was also joined by highly anticipated economic data and important events.

The US PCE price index, the Federal Reserve preferred inflation indicator, showed that inflation was down yesterday. The index rose at a slower annual pace in October compared with the previous month. This is the sign that markets were waiting for to confirm that the Fed’s rate hikes are working to end inflation.  

Last month's core PCE price index, which excludes items such as food and fuel, declined to 3.5% annually and 0.2% monthly. This is in line with estimates. In September it had increased 3.7% and 0.3%, respectively.

Fed Official Williams’ Commented That Rates Could Rise Again

The figure did not have any immediate impact on the market as it met expectations and confirmed the downward trend in prices.

Just moments after the release, Fed official John C. Williams commented that, "If inflationary pressures persist, we could raise rates again".

These comments do not make much sense at a time when published inflation figures clearly show a decline. Whatever the case, the market took notice of the comments and took them as an "excuse" to take profit on long stocks and short Dollar positions. In reality, it is a purely technical movement which is reinforced by the month-end date. This is a time when investment fund position adjustments occur.

Traders Could Continue to Buy Stocks and Sell US Dollars  

Most likely, traders will take advantage of these corrective movements. They may continue to buy stocks and sell US Dollars since the underlying fundamental situation (the end of interest rate increases and potential cuts next year) has not changed.

OPEC+ Announced an Additional Production Cut of 1M bpd

The other important event yesterday was the OPEC+ meeting. After the delay in the ministerial meeting of the oil-producing countries, the market expected a production cut announcement that is aimed at stopping the fall in the price of crude oil.

OPEC+ did announce an additional cut of 1M bpd, but with an important caveat. These production cuts are voluntary, and they will not be carried out until April.

Evidently, these conditions do not ensure that the size of the production reduction will be established, or even that it will occur. In this case, expectations were not met and WTI oil fell more than $4 from the highs during the session.

oil chart dec 1 2023.png

Crude Oil daily chart, December 1, 2023. Source: WebTrader.  

Key Takeaways

  • October’s US PCE declined to 3.5% annually and 0.2% monthly.
  • After the release Fed official John C. Williams commented that more rate hikes may be needed.
  • Markets saw this comment as an excuse to take profit on long stocks.
  • Traders may take advantage of these corrective movements to buy stocks and sell Dollars.
  • OPEC+ announced a voluntary additional production cut of 1M bpd.
  • WTI oil fell more than $4 from the highs during the session.

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Sources: Bloomberg, Reuters 







Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.