The Fed’s Preferred Inflation Gauge Slowed in October

Inflation remained rapid but showed early signs of slowing in October, based on a fresh release of the Federal Reserve’s most closely watched price measure, a flicker of good news for policymakers as they attempt to wrestle down the fastest price increases in four decades.

Prices as measured by the Personal Consumption Expenditures index climbed by 6 percent in the year through October, the report showed, in line with what economists in a Bloomberg survey had expected. That was down from a 6.3 percent increase in the year through September, a figure that was revised slightly upward.

After removing food and fuel, both of which jump around from month to month, the index climbed by 5 percent. That matched economist forecasts, and was down from 5.2 percent the previous month.

The Fed is closely watching how inflation evolves as it tries to determine how high to raise interest rates and how long to keep them elevated. Central bankers have raised borrowing costs to nearly 4 percent this year from near-zero in March, including a rapid series of three-quarter point moves. Jerome H. Powell, the Fed chair, signaled clearly on Wednesday that central bankers are poised to slow their rate increases in December. The question now is when — and at what rate — they will stop raising borrowing costs.

Mr. Powell suggested that rates will probably need to climb slightly higher than the 4.6 percent peak that officials anticipated in September, when they last released economic forecasts. Investors now see rates peaking from 4.75 percent to 5 percent before coming down slightly late in 2023, based on market pricing.

“Ongoing increases will be appropriate,” Mr. Powell said this week. “We have a long way to go in restoring price stability.”

Thursday’s inflation data follow a more timely Consumer Price Index report, which showed price increases starting to moderate in October. The C.P.I. data are closely tracked because they come out more promptly and they feed into the Personal Consumption Expenditures data. But the Fed uses the P.C.E. figures as its official inflation target.

Central bankers aim for 2 percent annual inflation on average and over time, so the current pace of increase is still far faster than their goal.

Many economists think that inflation will meaningfully decelerate in 2023, because market-based rent prices are now beginning to cool, supply chain problems have eased and consumers have been shifting their spending away from goods and toward services, which should help prices for physical products like couches and clothing to moderate.

Goldman Sachs economists said in their forecast in mid-November that inflation is likely to fall to about 3 percent by the end of 2023, after stripping out food and fuel prices. But last year at this time, they expected core inflation to fall to 2.3 percent by the end of 2022.

“Forecasts have been predicting just such a decline for more than a year, while inflation has moved stubbornly sideways,” Mr. Powell said this week. Later, he added that “we’re going to have to be humble and skeptical about forecasts for some time.”