Consumers Entered The Holidays With A Bit Of Extra Cash | Global News Avenue

Despite a rise in inflation in October, U.S. households went into the holidays with slightly more cash in their pockets than forecasters expected.

That’s according to a report on personal income and spending released Wednesday by the Bureau of Economic Analysis. The report showed that personal income increased by 0.6% this month, the largest increase since March.

The increase was double the 0.3% forecast by forecasters, according to a survey of economists. Dow Jones Newswires and wall street journal. The same report showed that the inflation rate was through Personal consumption expenditures (PCE) The price index rose 2.3% from the year ended in October, up from 2.1% in September, in line with expectations.

Household budgets made progress in October amid the tug-of-war between pay rises and rising prices that determine purchasing power. Inflation-adjusted after-tax income rose 0.4%, the highest level since January, after remaining flat throughout the summer and rising just 0.1% in September.

Some economists say that bodes well for the economy’s trajectory and retailers’ expectations for the holiday shopping season.

“The rebound in real income growth in October means consumers still have enough motivation to get through a decent holiday shopping season this year,” wrote Scott Anderson, chief U.S. economist at BMO Capital Markets.

What does the PCE report mean for the Fed?

The report could lead to Fed officials cutting their influential federal funds rate at next month’s meeting.

After the outbreak, the Federal Reserve raised key interest rates to a two-decade high and kept them there until September in an effort to cool the economy. The Fed has been cutting interest rates to boost the economy and prevent unemployment from soaring as inflation cools closer to the Fed’s 2% annual interest rate target.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, wrote in a commentary that the October inflation report showed higher inflation, but that may be more of a blip caused by data anomalies than a real setback . He said overall inflation was driven up by the prices of some items prone to large swings, including used cars, airline tickets and portfolio management fees, which tend to increase when the stock market performs well.

Financial markets are betting the Fed will still cut interest rates in December, as central bank officials predicted in their latest round of economic forecasts. CME Group’s FedWatch tool predicts interest rate trends based on federal funds futures trading data. After the release of inflation indicators on Wednesday, there is a 70% chance of a rate cut in December.

“Inflation momentum towards the Fed’s 2% target has weakened recently, but we believe this is not enough to prevent the Fed from cutting interest rates in December,” wrote Ryan Sweet, chief U.S. economist at Oxford Economics.

Clarification, November 27, 2024: This article has been updated to clarify that the PCE price index rose 2.3% year-over-year in October and rose 2.1% year-over-year in September.