US Inflation Alert: Fed’s Core PCE Index Remains Elevated in November

Keeping up with bills became more difficult for households in October and November as incomes failed to match rising prices, according to a new government report.

The Personal Consumption Expenditures (PCE) price index rose 2.8% year-over-year in November, slightly higher than October’s 2.7% increase, the Bureau of Economic Analysis said. Core PCE, which excludes food and energy, held steady at the same pace as September.

Inflation-adjusted disposable income slipped 0.1% in October before inching up 0.1% in November. Meanwhile, the savings rate fell to 3.5% in November from 4% in September, marking its lowest level since 2022.

The report confirmed ongoing trends of inflation running hotter than the Federal Reserve’s 2% target, with household income struggling to keep pace. It also covered a period impacted by the federal government shutdown, which added financial strain for government workers and may have skewed survey data.

“Consumers are still spending, but they dipped heavily into savings during the shutdown,” noted Heather Long, economist at Navy Federal Credit Union. She emphasized that income growth in 2026 will be critical to sustaining a healthy economy, while cautioning that the shutdown likely skewed the data.

The savings rate has dropped every month since April, when President Donald Trump announced sweeping “Liberation Day” tariffs on most countries. Although those tariffs were later scaled back, they along with other Trump trade measures have significantly impacted household budgets, driving uncertainty and higher prices across the economy.

The latest report reinforces mounting evidence that household budgets are under pressure, particularly among middle- and lower-income families. With rising costs outpacing income growth, many households are being forced to cut back.

If this belt-tightening continues, it risks weakening consumer spending the primary driver of the U.S. economy potentially slowing growth and amplifying financial stress across sectors.

The report was delayed by about a month as government agencies worked to catch up following the October November shutdown. Because of this disruption, the elevated level of core inflation reflected in the data may have less impact on the Federal Reserve’s upcoming interest rate decision than usual.

Core PCE prices remain critical since the Fed relies on this measure to gauge whether inflation is on target. Economists often focus on core inflation to assess long-term trends, as food and energy prices can fluctuate due to factors like weather that are unrelated to broader economic conditions.

The central bank is widely anticipated to keep interest rates unchanged at its upcoming policy meeting. Fed officials remain divided over whether to maintain the key fed funds rate at elevated levels to curb inflation or to lower it in order to support a slowing job market.

The fed funds rate directly impacts borrowing costs across mortgages, credit cards, and business loans. Keeping rates higher discourages borrowing and spending, which can help ease inflationary pressures, but it also risks further slowing economic activity and job growth.

The Federal Reserve is expected to keep interest rates steady at its upcoming meeting, reflecting the delicate balance between fighting persistent inflation and supporting a slowing job market. Elevated borrowing costs remain a tool to cool price pressures, but they also risk dampening consumer spending and hiring, leaving the Fed in a cautious holding pattern.