PCE, a Key Inflation Measure, Cooled in December

A measure of inflation closely watched by the Federal Reserve continued to cool in December, the latest sign that price increases are coming back under control even as growth remains solid and the labor market healthy. In particularly positive news, a key gauge of price increases dipped below 3 percent for the first time since early 2021.

The Personal Consumption Expenditures price index picked up 2.6 percent last month compared with a year earlier. That was in line with what economists had forecast and matched the November reading.

But after stripping out food and fuel costs, which can move around from month to month, a “core” price index climbed 2.9 percent from December 2022. That followed a 3.2 percent November reading, and was the coolest since March 2021.

Fed officials aim for 2 percent price increases, so today’s inflation remains elevated. Still, it is much lower than its roughly 7 percent peak in 2022. In their latest economic projections, central bankers predicted that inflation would cool to 2.4 percent by the end of the year.

As inflation progresses back to target, policymakers have been able to dial back their campaign to slow down the economy. Fed officials have raised interest rates to a range of 5.25 to 5.5 percent, up sharply from near zero as recently as early 2022. But they have held borrowing costs steady at that level since July — forgoing a final rate increase that they had previously predicted — and have signaled that they could cut interest rates several times this year.

Officials are trying to complete the process of setting the economy down gently, without inflicting serious economic pain, in what is often called a “soft landing.”

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