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Key Takeaways

• Inflation was unexpectedly cool in November, as measured by Personal Consumption Expenditures (PCE), the measure preferred by Federal Reserve policymakers.
  

• The yearly inflation rate ticked to 2.4%, up from 2.3% in October, but lower than the 2.5% forecasters expected.
  

• Officials at the Federal Reserve would likely need to see more good inflation reports in the coming months before making any further cuts to the high borrowing costs meant to keep inflation under control.
  

Inflation reaccelerated in November by the measure preferred by Federal Reserve policymakers, but not as much as forecasters had expected.

The cost of living rose 2.4% over the year in November, up from a 2.3% annual increase in October, the Bureau of Economic Analysis said Friday in its monthly Personal Consumption Expenditures (PCE) report on spending and inflation. That was a slower rate than the 2.5% increase forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

"I'm hopeful that this suggests that the couple of months of firming were more of a bump than a change in path," said Chicago Federal Reserve Bank President Austan Goolsbee in a televised interview with CNBC Friday.

"Core" inflation, which excludes the volatile prices for food and energy, rose 2.8% over the year, flat from the month prior instead of the uptick to the median 2.9% forecasters expected. Policymakers pay closer attention to core inflation because food and energy prices can rise and fall for reasons that have little to do with broader inflation trends.

The subdued inflation rate was especially surprising since a different measure of inflation, the Consumer Price Index, showed price increases stubbornly rose in November. Officials at the Federal Reserve pay closer attention to PCE inflation when setting the nation's monetary policy. The Fed aims to get PCE inflation down to an annual rate of 2% and keep it there after it flared up to more than 7% in 2022.

What Does Friday's PCE Report Mean For the Fed?

With inflation having closed in on the Fed's 2% target in recent months, the central bank has been cutting its influential fed funds rate since September. Since then, they have been reducing it from a two-decade high that was meant to raise borrowing costs, discourage spending, and cool inflation.

However, Fed officials have become wary that incoming president Donald Trump's economic policies could reignite high inflation and have indicated that future rate cuts will be fewer and further between.

Ali Jaffery, an economist at CBC, wrote in a commentary that Friday's unexpectedly good inflation report is unlikely to change that outlook.

"The bottom line here is the Fed is going to be in wait-and-see mode for at least for some time," he wrote.