Dow, S&P 500 and Nasdaq rally as inflation data improves but still stable

Investors will be paying close attention to a key inflation report this morning that will determine future monetary policy.

The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures (PCE) index, which excludes fluctuating food and energy costs, was expected to have risen 0.2% in November from the previous month, according to Bloomberg data, after prices fell in the October had risen by 0.3%.

Compared to a year ago, Wall Street expects core prices to rise 2.9%, above October’s 2.8% rise.

Overall, PCE is expected to rise 2.5% year-over-year, an acceleration from October’s 2.3% annual increase.

The report, to be released at 8:30 a.m. ET, comes after the central bank cut interest rates by 25 basis points at its final policy meeting of the year on Wednesday. Officials also signaled there would be less easing in 2025 as inflation is expected to remain high over the long term.

Earlier this month, the core consumer price index (CPI), which excludes the more volatile costs of food and gasoline, recorded a 3.3% year-on-year price increase in November for the fourth straight month.

Meanwhile, the central producer price index (PPI), which measures company price changes, showed prices rose 3.4% annually in November. That’s up from a 3.1% rise in October and also above economists’ expectations for a 3.2% rise.

In a news conference following the interest rate decision on Wednesday, Federal Reserve Chairman Jerome Powell indicated that the final mile in the Fed’s fight to contain inflation had been more difficult than central bank chiefs had initially predicted.

“We had an inflation forecast for the end of the year, and that has kind of fallen apart as we get closer to the end of the year,” Powell said. “I can tell you that this could be the single biggest factor – inflation has once again underperformed relative to expectations.”