PREVIEW - US PCE for October and November are due at 15:00GMT/10:00EST

EXPECTATIONS: Analysts expect both October and November's headline PCE to rise +0.2% M/M, and the core rate is expected to rise +0.1% M/M. The Bureau of Economic Analysis said US personal income and outlays for October and November 2025, including PCE inflation data (the Fedʼs preferred gauge), will be released on 22nd January. The BEA was unable to produce normal monthly PCE inflation data during the government shutdown because of missing data sources and will approximate October and November PCE using CPI averages.
DRIVERS: Analysts said differences between CPI and PCE mean November CPI may disproportionately influence the delayed and partly modelled PCE inflation estimates. In November, headline producer prices rose 0.2% M/M, with annual PPI running at around 3.0%. Meanwhile, November CPI showed inflation of 2.7% Y/Y, undershooting expectations and partly distorted by missing data collection during the shutdown. Looking ahead to the December PCE report, due on 20th February, the data are likely to show firmer price pressures than suggested by the latest CPI. While December CPI showed headline inflation at 2.7% Y/Y and core inflation at 2.6%, underlying components point to upside risks for PCE: food prices rose 0.7% M/M, the largest increase since October 2022, and economists noted a widening gap between CPI and PCE measures. PCE places greater weight on categories where prices are currently rising, reflecting actual consumer spending patterns more closely than CPIʼs fixed basket.
AHEAD: Analysts at Barclays and Morgan Stanley raised their December PCE forecasts to just under 0.5% M/M, according to Reuters, which could lift the annual rate to 2.8-2.9%. BNP Paribas also warned that PCE inflation is likely to run significantly hotter than CPI. Together with firmer producer price trends, the data suggest PCE may remain close to 3%, reinforcing expectations that price pressures will ease only gradually.
FED POLICY: Writing after the December inflation data, WSJ Fedwatcher Nick Timiraos said the latest trends are unlikely to alter the Fedʼs wait-and-see stance, as officials want clearer evidence that inflation is levelling off; he added that rate cuts would likely require either weakening job market conditions or further signs of fading price pressures over the coming months. Most Fed officials speaking this year have said that while inflation is easing towards its 2% target, it remains above that level, favouring a cautious stance on policy adjustments; they view current monetary policy as appropriately restrictive, with any cuts contingent on clearer disinflation progress. At the time of writing, money markets are assigning a 5% probability that rates will be cut at the 28th January confab, and just over a 20% chance of a 25bps cut by the 18th March meeting, according to CME data. Through to the end of the year, the statistical mode sees rates at 3.00-3.25% in December (vs the Fedʼs December projections of 3.25-3.50%, and vs the current 3.50-3.75%).