Slightly hotter PCE reading keeps rate path uncertain for lenders and borrowers
Mortgage lenders head into the next Federal Reserve meeting weighing an inflation report that inched higher in November but stayed broadly on script, reinforcing expectations that policymakers would hold fire on further rate cuts in the near term.
The Commerce Department’s personal consumption expenditures (PCE) price index - the Fed’s preferred inflation gauge - showed prices up 2.8% year over year in November, for both headline and core measures, compared with 2.7% in October.
Monthly gains came in at 0.2% for each month, matching forecasts and signaling that inflation drifted only slightly further from the central bank’s 2% goal while remaining orderly by recent standards.
Personal income and spending data pointed to resilient consumers, with outlays rising 0.5% in both October and November even as income growth cooled.
“The consumer continues to drive the U.S economy, with today’s data pointing to another strong gain in spending. This resilience comes in spite of last year’s slowdown in the labor market, and still elevated inflation, both of which have weighed on real incomes,” James McCann, senior economist for investment strategy at Edward Jones, said.
“Today’s data should reassure the Fed that the economy remains on a solid footing, despite a cooler labor market.”
Markets expect the Fed to keep its benchmark rate unchanged at its upcoming meeting after three cuts in 2025, with futures pricing in at most two additional reductions this year. That left mortgage pricing tethered to hopes of a gradual decline in funding costs rather than a rapid reset.
Inflation has not re-ignited, but it has not yet fallen far enough to force the Fed’s hand. Until that gap narrowed more decisively, borrowing costs are likely to ease in fits and starts rather than in a straight line.
At the same time, the US economy’s strongest quarterly growth in two years sharpens the dilemma facing Fed officials as they weigh how soon – and how far – to cut interest rates in 2026.
A blockbuster 4.4% annualised gain in gross domestic product for the third quarter of 2025, driven largely by consumer spending, underlines an expansion that remains stubbornly resilient even as higher borrowing costs squeeze housing and credit‑sensitive sectors.
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