The Personal Consumption Expenditure (PCE) index, delayed for five weeks due to the U.S. government shutdown from October 1 to November 12, shows that prices rose 0.3% in September compared to the previous month and 2.8% compared to the same period last year, a slight increase from the 2.7% recorded in August, according to the Commerce Department on Friday.
However, core inflation (excluding volatile food and energy prices) slightly slowed to 2.8% year-on-year, compared to 2.9% the previous month.
With inflation above the central bank’s 2% target, partly due to tariffs imposed by U.S. President Donald Trump, Fed members face a difficult decision at the monthly meeting.
While keeping interest rates high is advised to combat inflation, weak job creation, slowly rising unemployment, residual economic growth, and deceleration in wage growth, which saw a 4.4% year-on-year increase compared to 4.5% in November, seem to suggest lowering rates to boost the economy.
Investors expect the Fed to eventually decide to continue cutting its main interest rate by another 25 basis points, which would be the third cut of the year, in an attempt to stimulate the U.S. job market.
Due to the prolonged government shutdown, the October unemployment rate will never be published, and the November rate will be released later than usual, after the Federal Reserve meeting.
In the week of Thanksgiving, U.S. jobless claims fell to 191,000 from 218,000 the previous week, marking the lowest level in more than three years, the Labor Department reported on Thursday.
Kathy Bostjancic, chief economist at Nationwide, told the Associated Press (AP) that jobless claims are often distorted by the Thanksgiving holiday, which can cause some people who lost their jobs to delay filing their claims.
Recent job cuts announced by large companies such as UPS, General Motors, Amazon, and Verizon typically take weeks or months to materialize, possibly not reflected in the data released on Thursday.
In recent weeks, the U.S. labor market appears to be stuck in a state of “few hirings and few layoffs,” keeping the unemployment rate historically low.
“We are no longer faced with a labor market with few hirings. It is a labor market that is starting to lay off workers,” Heather Long, an economist with Navy Federal Credit Union, wrote in a report cited by AFP.
“Some sectors” are slowing down, mainly construction, as admitted on Wednesday by U.S. Treasury Secretary Scott Bessent.
“That’s why we need interest rate cuts,” he stated, though he also expressed optimism about the economy in the coming year.
At the last meeting on October 29, the Federal Open Market Committee (FOMC) of the Fed’s decision to cut the interest rate by 25 basis points was not unanimous, with two of the twelve members voting against.
At the end of the meeting, Chairman Jerome Powell noted that due to the “very different views” in the committee, a new rate cut in December “is by no means guaranteed.”
This was the second rate cut decided by the Fed since the start of the year. The first, also 0.25 points, occurred in September.
The Federal Open Market Committee (FOMC) consists of the seven members of the Federal Reserve Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents, serving one-year terms on a rotating basis.
U.S. President Donald Trump has persistently advocated for lower interest rates to reduce borrowing costs and support his “pro-growth” policies, based on tax cuts, deregulation, and tariffs.
