Forecasts for November PCE Preview Show More Moderation in Inflation

Forecasts for the November Personal Expenditures report show that inflation overall continued to cool, even though the path to the Federal Reserve’s 2% target remains bumpy.

Friday’s PCE data will come after the Fed cut interest rates by another 0.25% this week. Analysts expect the pace of cuts to slow in 2025 as progress on inflation slows and the labor market remains in balance.

In November, economists expect that the overall PCE index rose 0.2% on a monthly basis and 2.5% on an annual basis, according to FactSet’s consensus estimates. They anticipate that the core measure of PCE inflation, which excludes volatile food and energy prices, rose 0.2% on a monthly basis and 2.9% over the past year.

“The overall trend on a month-over-month basis will be for a cool down from that 0.3% [core] print in October,” says Lydia Boussour, senior economist at EY. She’s expecting roughly 0.2% growth in headline inflation and 0.1% growth in core inflation.

The year-over-year inflation rate is expected to rise from 2.3% in October to 2.5% in November, but Boussour says some of that uptick has to do with weaker inflation readings a year ago: “You’re getting those base effects that are less favorable. That’s going to be pushing up the year-over-year pace of inflation.”

Overall, Boussour believes the fundamental drivers of inflation—including the labor market, consumer spending, domestic demand, and changes in home prices—continue to moderate in the short term. “All these factors suggest we remain on that disinflation trend, even if it’s bumpy,” she says.

October PCE Report Highlights

• PCE report release date and time: Friday, Dec. 20, at 8:30 a.m. EDT
• The PCE Price Index is forecast to rise 0.20% in November after rising 0.24% in October.
• Core PCE is forecast to rise 0.20% in November after rising 0.27% in October.
• Year over year, the PCE Price Index is forecast to rise 2.5% in November after increasing 2.1% in September.
• Core PCE year over year is forecast to rise 2.8% in October after increasing 2.7% in September.

Much of the source data for the PCE Price Index is released ahead of the report, which means economists already have a good idea of what Friday’s release will look like. The PCE report is also the Fed’s preferred measure of price pressures, rather than the Consumer Price Index report, released earlier in the month.

Based on that data, Boussour expects Friday’s PCE report to show some moderation in housing prices and smaller gains for portfolio management services compared with October. She says a slight decline in goods prices is likely, and adds that she doesn’t expect gasoline prices to be a major factor this time around. Falling gas prices have helped bring overall inflation lower for much of 2024.

Overall, “this report is going to be a little more encouraging than the CPI data, which has been a little stickier,” Boussour adds.

Risks to the Upside

While the drivers of disinflation remain in place for now, analysts say the policy outlook for 2025 could delay that progress. “We do see upside risk to the inflation outlook from the potential for higher tariffs, for deregulation,” Boussour says. She also points to the potential for stronger economic growth and changes in tax policy, all of which could exacerbate lingering price pressures. “There is a lot of potential to see inflation higher than what we previously anticipated ahead of the election,” she says.

Will the Fed Cut Rates in January?

That has implications for monetary policy. For the Fed, “the outlook beyond [December] remains murky,” Bank of America economists wrote earlier this month. “Progress on inflation has stalled of late, and there are upside risks to inflation on the horizon.”

Many analysts expect the central bank to pause rate cuts at its January meeting. Bond futures markets agree; as of Wednesday afternoon, traders were pricing in an 88% chance that the Fed will hold rates steady in January, according to the CME FedWatch tool.

In the Federal Reserve Open Markets Committee’s quarterly summary of economic projections, the median estimate for the target federal funds rate at the end of 2025 was a range of 3.75%-4.00%. That would suggest another 0.50% of easing over the course of the year, or two 0.25% rate cuts.

These projections see less easing than the Fed anticipated in September. In a press conference Wednesday afternoon, Chair Jerome Powell said the change was “consistent with a firmer inflation projection.”