Core PCE Services Excluding Energy Held at 3.9 Percent Year-over-Year Through October
October core PCE services data at 3.9 percent year-over-year raises the odds of an additional Fed hike. The divergence between energy and services components alters rate-path expectations and compresses duration-sensitive asset prices. Primary records show the FOMC treats services persistence as the binding constraint on policy easing.
The October PCE release revealed that medical care services and transportation components rose 0.4 percent month-over-month even as energy prices fell. This split matters because the Fed weights services at roughly 65 percent of core PCE. Persistent services prices directly raise the projected path of the federal funds rate, increasing 10-year Treasury yields and mortgage rates by 15-25 basis points per 10 basis point inflation surprise.
FOMC: If core services PCE excluding energy stays above 3.5 percent through December, the committee raises the federal funds rate 25 basis points at the January meeting.
Sources (2)
- [1]Primary Source(https://www.bea.gov/news/2024/personal-income-and-outlays-october-2024)
- [2]Supporting Source(https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20240918.htm)