Inflation Watch: What To Expect From The December PCE Index Friday

Zinger Key Points
  • According to Street estimates, core PCE inflation is predicted to rise by 0.3% on a monthly basis.
  • The annual rate is forecasted to dip to 4.4% from the November rate of 4.7%.

As the market digests the positive economic data issued Thursday, investor eyes are turned to the Friday release of the Personal Consumption Expenditures (PCE) price index data for December.

The Fed's go-to indicator of inflation, PCE, holds the power to sway market trends and shape monetary policy.

What Happened: According to Street estimates, core PCE inflation, removing the impact of volatile food and energy prices, is predicted to rise by 0.3% on a monthly basis.

The annual rate is forecasted to dip from the November rate of 4.7% to 4.4%.

This follows on the heels of the U.S. Bureau of Labor Statistics report showing a decrease in the core Consumer Price Index (CPI) from 6% in December to 5.7%.

Read also: Q4 GDP Estimate Tops Economist Forecasts In Positive Sign For US Economy: What It Means For The Federal Reserve

These projections have led to markets pricing in a less aggressive stance from the Federal Reserve in terms of policy tightening.

The CME Group FedWatch Tool reflects this sentiment, showing a 99.1% chance of a 25-basis-point interest rate hike when the Fed announces its next interest rate decision Feb. 1. 

Why It Matters: On Thursday, data issued by the Bureau of Economic Analysis showed the U.S. economy grew by an estimated 2.9% from October to December, marking the second straight quarter of economic growth, a positive sign for broader markets.

The increase comes on the heels of a 3.2% real GDP increase in the third quarter.

Strong GDP growth is generally seen as a positive indicator for a nation's economy, as it suggests increased productivity and economic activity.

As the U.S. continues to wrestle with still-high inflation, the Fed may choose to keep interest rates higher for longer in order to slow down inflation and stabilize the economy.

Read next: Unexpected Twist In Tech Layoffs: New Unemployment Claims Drop Amid Positive Economic Growth 

Photo via Shutterstock.

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