Wall Street Sees Fed's Preferred Inflation Metric Rising

Dow Jones02:29

Hot inflation data this morning, coupled with hawkish comments from two Fed officials, have traders at least considering the possibility of a larger half-point rate increase next month. A look at the Fed's preferred inflation metric shows why officials have grown more concerned.

The Fed's 2% inflation target references not the CPI data released this morning but a separate inflation measure, the personal-consumption expenditures price index. Economists use CPI data to inform their estimates for how the PCE index will move.

After parsing today's CPI data, Wall Street economists think that the core PCE index, excluding food and energy prices, rose by anywhere from 0.33% to 0.35% in October. That would be enough to raise the 12-month core PCE inflation rate to 3.3%, from 3.1% in September.

A 3.3% core PCE reading would be the highest since November 2023. Economists will refine their PCE estimates on Friday morning, with help from the producer-price data that the Labor Department will publish.

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