Fed’s preferred inflation gauge rises to 2.3% annually, meeting expectations

Inflation edged higher in October as the Federal Reserve is looking for clues on how much it should lower interest rates, the Commerce Department reported Wednesday.

The personal consumption expenditures price index, a broad measure the Fed prefers as its inflation gauge, increased 0.2% on the month and showed a 12-month inflation rate of 2.3%. Both were in line with the Dow Jones consensus forecast, though the annual rate was higher than the 2.1% level in September.

Excluding food and energy, core inflation showed even stronger readings, with the increase at 0.3% on a monthly basis and an annual reading of 2.8%. Both also met expectations. The annual rate was 0.1 percentage point above the prior month.

Services prices generated most of the inflation for the month, rising 0.4%, while goods fell 0.1%. Food prices were little changed, while energy was off 0.1%.

Fed policymakers target inflation at a 2% annual rate. PCE inflation has been above that level since March 2021 and peaked around 7.2% in June 2022, prompting the Fed to go an on aggressive rate-hiking campaign.

Stocks were mixed following the release, with the Dow Jones Industrial Average up about 100 points, though the S&P 500 and Nasdaq Composite were both negative. Treasury yields fell.

Despite the rise in headline inflation, traders increased their bets that the Fed would approve another rate cut in December. Odds of a quarter-percentage-point reduction in the central bank's key borrowing rate were at 66% Wednesday morning, according to the CME Group's FedWatch measure.

While the inflation rate has dropped significantly since the Fed started tightening, it remains a nettlesome problem for households and figured prominently into the presidential race. Despite its