• The latest PCE price index rose in line with consensus expectations in October, but the divergence
between the core and headline numbers reflects the disinflationary impact of falling energy prices in
recent months.
• According to the Bureau of Economic Analysis, the core inflation rate, which excludes food and energy
costs from calculations and is the Federal Reserve’s preferred measure for monetary policymaking,
climbed 0.2% month-over-month and 3.5% over the past 12 months. However, headline inflation (including
food and energy) remained flat for the month.
• Falling energy prices largely explain the static headline numbers even as core prices climb. In October,
energy prices fell a massive 2.6% month-over-month, significantly dampening the inflationary impact of
other goods, such as food and housing, that gained during the month.
• ·As the Fed’s preferred measure rises while the more publicly visible headline data flattens, it compilates
its short-term interest rate policy decisions. However, officials will likely be looking to see if falling energy
prices dampen prices of core consumer goods and whether falling headline inflation helps shift future
inflation expectations.
• The average rate on a 30-year fixed rate mortgage fell for the sixth consecutive week during the week of
December 7th, charting at 7.03%, according to Freddie Mac data.
• The latest reading reflects a notable decline in Treasury yields that began toward the end of October as
bond markets recalibrated for an increased likelihood of the Fed ending its interest rate tightening.
• Rates continue to sit close to multi-decade highs but have fallen off of a rent peak of 7.8% reached in
late October. According to Freddie Mac’s Chief Economist, while purchase activity initially increased in
response to falling rates in early November, this improvement in demand has receded in the past week.

Read the full report here.