Local time on the 27th, the United States will announce the October Consumer Expenditure Price Index (PCE).

With recent fluctuations in price indicators and Trump's victory in the U.S. election, the risk of a resurgence in inflation is introducing more uncertainty to the Federal Reserve's new round of easing cycle. Therefore, as the last major inflation report before the December interest rate meeting, the data performance may impact the final policy decision.

The core PCE may reach a six-month high.

In September, the overall PCE in the United States was close to the Federal Reserve's 2% target. However, several indicators subsequently released suggest that price pressures may be increasing. The October Consumer Price Index (CPI) slightly exceeded expectations, showing slow progress in achieving the target's last mile. Several Federal Reserve officials have stated that they will closely monitor inflation when considering further rate cuts.

First Financial Daily reporters have found that, with the fading of last year's base effect, Wall Street expects the overall PCE to rise by 0.2% month-on-month in October, with the year-on-year growth rate increasing from 2.1% in September to 2.3%.

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At the same time, as the Federal Reserve's preferred inflation indicator, the core PCE, which excludes food and energy, is expected to rise by 0.3% month-on-month and 2.8% year-on-year, which would be the largest increase since April.

The inflation in the service industry is expected to continue to be the main driver, with strong demand from American households driving up prices in sectors such as travel and leisure, rent, and medical consumption. It is worth mentioning that Trump's victory may also be a factor in raising prices. The new round of stock market increases will reflect the increase in the cost of portfolio management and investment advisory services, which is a category in the PCE index, mainly following market fluctuations. Skanda Amarnath, Executive Director of the think tank Employ America, estimates that compared to the trend before the pandemic, the stock market effect accounts for more than one-third of the increase in core service inflation.

Personal income and personal expenditure monthly rates are also announced at the same time as PCE. Both are of great reference significance for predicting future price trends, and consumer spending and income expectations help reflect the impact of demand on inflation.

Wells Fargo wrote in a report to First Financial Daily reporters that the resilience of household spending at the beginning of the fourth quarter and the stable growth of income, with stronger-than-expected October retail sales data, indicate that households are entering the important holiday sales season in good condition, and consumer spending is expected to rise by 0.4%.

Personal income is expected to grow by 0.3% for the second consecutive month, thanks to healthy but moderate employment growth. Wells Fargo believes that although the sources of household spending have changed, purchasing power remains intact. Specifically, income has once again become the main driving force. Despite a slowdown in the labor market, income growth has remained quite good and continues to support spending.

How the Federal Reserve weighs in

Recently, several officials, including Federal Reserve Chairman Powell, have hinted that a rate cut in December is not a foregone conclusion. Given the receding economic risks, the pace of easing can be slowed in the future.

Since September, the pace of price increases has been slightly faster than expected, raising questions about when and even whether the Federal Reserve can achieve a stable 2% inflation target. The policies of the incoming Trump administration also add uncertainty. "Whether the Federal Reserve can achieve a 2% inflation target is an open question," said Richard Moody, Chief Economist at Regions Financial. "There are potential price pressures in many areas of the economy."

The main obstacle to further easing by the Federal Reserve is the rise in rent and housing prices, which is the largest expense for most Americans. The latest data shows that housing costs are still rising at an annual rate of 5%. The rise in service costs (such as car repairs, insurance, or financial advice) has also noticeably accelerated compared to before the pandemic. Lauren Goodwin, an economist and Chief Market Strategist at New York Life Investments, believes that the problem seems more difficult from the perspective of the so-called core personal consumption expenditure index.

Steve Blitz, Senior Chief Economist at Lombard Global Macro Research, pointed out that the U.S. economy is maintaining strong growth, and the unemployment rate is also at a historical low of 4.1%. "In this environment, inflation will not drop significantly again. When inflation drops, it is usually because the economy is weak and the unemployment rate rises sharply." He warned that Federal Reserve rate cuts could prolong the period of rising inflation and further boost the strong economy, creating new upward pressure on labor costs and material prices.

On the other hand, Trump's election may bring another obstacle to the Federal Reserve's path. Higher tariffs, tough immigration policies, tax cuts, and more government spending may pose price risks. However, before the new government introduces specific policies and obtains congressional approval, no one can guess how these will affect the economy, and the effects of policy implementation also take time.

Michael Pearce, Deputy Chief Economist at Oxford Economics, wrote in a report to First Financial Daily reporters: "Will we reach a 2% inflation rate before we start to see the impact of trade and fiscal policies? This is more of a 2026 story than a 2025 story." He said that the advantage of the Federal Reserve taking slow action is that senior officials will have more time to assess the impact of Trump's policies before deciding how much to cut rates in 2025 and 2026.

The federal funds rate futures show that the probability of a rate cut in December is hovering around 60%, which also means that the upcoming silence period, with only a small amount of data for reference, makes the meeting outcome full of uncertainty.