US PCE inflation cools in November

(Reuters) -The personal consumption expenditures (PCE) price index rose a less-than-expected 0.1% in November, marking a cooler inflation picture than October's unrevised 0.2% gain, and, combined with solid but disappointing consumer spending, supported markets struggling with the Federal Reserve's "hawkish' rate cut this week.

The Commerce Department also reported on Friday that in the year through November, the PCE price index advanced 2.4% after rising 2.3% in October. The increase in the annual inflation rate was partly due to last year's low readings dropping out of the calculation.

Excluding the volatile food and energy components, the PCE price index climbed 0.1%, after an unrevised 0.3% gain in October. In the 12 months through November, the so-called core inflation increased 2.8% after advancing by the same margin in October.

MARKET REACTION:

STOCKS: The S&P 500 pared losses to -0.51%, still pointing to a weak open on Wall Street

BONDS: U.S. Treasury 10-year yields fell to 4.506% and the two-year yield fell to 4.259%

FOREX: The dollar index extended lower show a loss of 0.42%

COMMENTS:

ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK

"The market is having a little bit of a relief rally here... The Fed came out on Wednesday and said inflation is still public enemy No. 1. They cut rates but... inflation was still not where they wanted it to be.

"So, it's a bullish reaction from the major indices' standpoint... because the data takes away the threat that inflation is out of control... Today's data doesn't force the Fed's hand. It's not hot enough where the Fed has to raise rates, and hence the relief rally. And we're really oversold in the short term."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA (by email)

"The market woke up in a terrible mood - an unexpected government shutdown and a more-hawkish-than-expected Fed are to blame - but this morning's inflation data came in lower-than-expected and took some of the edge off."

"We expect the market will continue to sell off into the weekend, but we will be watching the last 15 minutes of trading today to see how we finish. If the selling builds throughout the day and there is momentum (to the downside) heading into the weekend then that would be a bad sign for next week, however, if we see some dip-buying later today and the market finishes significantly higher than the lows of the day would suggest, then that would make us more optimistic for next week."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

"Powell must be getting tired of the data undermining things he says. Lower inflation than expected and slower spending growth don't corroborate the Fed's sudden tilt towards hawkishness. The jump in auto sales isn't likely going to be a massive driver of growth over the next year. Consumers aren't shelling out more on everyday spending items. The Fed will likely change its tune once again sometime soon."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

"All the macro data this morning was cooler than expected. This is good news for markets, but it doesn't change the path for the Fed."

"It indicates that we got a bit of a moderation in inflation, it doesn't necessarily make a trend, but it should relieve some of the pressures in the bond market. Yields probably will respond. And in terms of the equity markets, I think it should help lift some of the early weakness."

"Spending is a little bit on the weak side. Does that indicate that perhaps the consumer is losing by is losing buying power? I don't think so."

HELEN GIVEN, FX TRADER, MONEX USA, WASHINGTON DC

?? "The market reaction that we're seeing right now looks like it's mostly being driven by that personal income and personal spending release that came with it. Personal income and personal spending were both under expectations, but the prior month the personal income was revised up, so I think this reaction is going to be fairly muted."

????"The annualized PCE print itself, again, slightly under expectations, but we're still above that 2% target, so I don't think this is doing to change anything that Jerome Powell said on Wednesday afternoon. I do think it's still quite likely that the Fed pauses in January. We may see a cut in March, but I'm not really convinced of it yet. They're going to need some more evidence to move forward with further easing."

(Compiled by the Global Finance & Markets Breaking News team)