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Updated at 9:03 AM EST

The Federal Reserve’s preferred inflation gauge last month slowed to the lowest pace in nearly three years, although a big jump in consumer spending left at least some concern that price pressures could remain elevated into the coming year.

The Bureau of Economic Analysis’ PCE Price Index showed core prices eased to 2.9% last month, besting Wall Street’s forecast of 3% and the November reading of 3.2%. The reading was also the lowest since March 2021.

On a monthly basis, core pressures were up 0.2%, a modestly quicker pace compared with November’s 0.1% gain.

Markets often key on the bureau’s core PCE price index, which the Fed considers a more accurate representation of consumer-price pressures since it blends changes in spending patterns.

The headline index, meanwhile, held at an annual rate of 2.6%, matching Wall Street’s forecast. On a monthly basis, prices rose 0.2% following the first negative reading since April 2020 in November. 

“We view today’s PCE and Personal Spending data as bullish for both the Fed’s path to their 2% target and also for the stock market,” said Larry Tentarelli, chief technical strategist at the Blue Chip Daily Trend Report.

“Based on strong recent GDP data and jobs data, we expect the first rate cut to be in the May-June period,” he added. “If jobs and or economic data softens a bit and inflation continues to drop quickly, that could increase the chances of a rate cut in March, but that is not our base case yet.”

U.S. stocks turned higher following the data release with futures tied to the S&P 500 indicating a 5 point opening bell gain while those linked to the Dow Jones Industrial Average suggest a 15 point bump. 

Benchmark 10-year Treasury note yields were 2 basis points higher at 4.143% thanks in part to the higher spending figures included in the release, while 2-year notes were pegged at 4.339%.

The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.2% lower from yesterday’s levels at 103.209

CME Group’s FedWatch, which is expecting no change from the Federal Reserve on rates when its two-day policy meeting ends next Wednesday, is split on whether the Fed starts cutting rates in March. The odds of a May cut are pegged at around 92%.

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