The Federal Reserve finds itself in a more comfortable position as its preferred inflation gauge, the personal consumption expenditures (PCE) price index, hits its lowest point in over two and a half years. With a steady PCE on a monthly basis and a decrease to a 3% annual increase in October, the pressure for the central bank to enact another quarter-point rate hike before the year-end is significantly alleviated. October's personal incomes rose by 0.2%, a decline from September and October figures, marking a potential shift in market expectations as rate cuts for the next year are already being factored in. The Fed's anticipated decision to keep rates within the current range of 5.25% to 5.5% stands at a 96% probability, contrasting the last official projection of an additional quarter-point rate hike for the year.

The core PCE, which excludes food and energy categories influenced by geopolitical factors, decreased to a 3.5% annual increase in October. Both the core and headline PCE numbers fall below the Fed's year-end expectations, as outlined in its latest summary of projections. The slowdown in price acceleration is mirrored in the Labor Department's consumer price index (CPI), which maintained stability in October with a 3.2% annual increase. Food prices recorded a 3.3% rise compared to a year ago, while energy prices experienced a 4.5% decrease.

Despite the deceleration in inflation, prices remain considerably higher than pre-pandemic levels, averaging a 20% increase since the beginning of 2020. This persistent high level of prices might contribute to President Biden's lower approval ratings for handling the economy, despite a robust labor market. Fed officials express confidence in their approach to inflation, with board member Christopher Waller stating that policy is well-positioned to slow the economy and bring inflation back to the target of 2%. Recent data indicates a moderation in economic activity, aligning with the goal of addressing inflation concerns.