The PCE Price Index is the Federal Reserve’s preferred measure of inflation because it tracks consumers’ purchasing decisions more accurately than the Consumer Price Index (CPI). That’s because the basket of goods and services making up the PCE Price Index is updated more frequently to reflect shifts in consumer preferences. Consumers have been more optimistic about inflation in recent weeks after the CPI showed the annual rate of inflation declined by more than expected to an annual rate of 7.1% in November. Today’s report supports that trend. With inflation continuing to ease, it raises the chance that the central bank will be more moderate with interest rate hikes at its next meeting at the end of January, though the rate of inflation remains well above the Fed’s 2% target. Stocks were flat to lower following the release. While there’s no guarantee it will happen, markets could get a nice little boost at the end of the year in what’s known as a “Santa Claus Rally.” There is no definitive explanation for why stocks tend to rise in the days between Christmas and New Year’s, but it could potentially provide a holiday reprieve for investors after a tumultuous year for U.S. equity markets.
