U.S. Core PCE Prices Dip: Implications for Rate Cuts

In December 2023, the core PCE prices in the United States, which do not take into account food and energy, saw an increase of 0.2% compared to the previous month, marching in step with projected market predictions. This was a small uptick from November’s increase of 0.1%. Looking at year-on-year trends, the core PCE prices recorded a 2.9% rise from the previous year, falling slightly short of the 3% increase that market predictions had set, rendering it the lowest such reading since February 2021. 

Turning our attention to the overall national PCE, a broader scope that includes both energy and food costs, it is observed that the prices increased by 0.2% in comparison to the previous month, and 2.6% when compared to the previous year, aligning squarely with market expectations. An examination of prices for goods indicates a less than 0.1% rise from the preceding year, 2022, while the prices for services steadfastly remained high, standing at 3.9%. 

(US Core PCE Price Index，The Bureau of Economic Analysis) 

The Dollar holds steadily after PCE data. The dollar index has surged to 103.7, its peak since mid-December, as investors await the Federal Reserve’s upcoming monetary policy decision this Wednesday. Although it’s expected for interest rates to remain steady, particular attention will be paid to any hints around the projected timing and rate of potential interest rate reductions this year. The current odds for a 25 basis point rate cut in March are approximately 49 percent, while identical reductions in May have a 50 percent likelihood. The dollar experienced its highest buying activity in relation to the euro, as investors increased their speculation that the European Central Bank will decrease loan rates as soon as April. Furthermore, the U.S. currency bolstered its position against the British pound in anticipation of the Bank of England’s monetary policy declaration this Thursday. 

(Dollar Index Monthly Chart) 

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