The Federal Reserve's preferred inflation gauge, the PCE Index, showed inflation continued to cool in November. But that doesn't mean Americans are feeling a tremendous amount of relief when they go to the store.

As Economic Cycle Research Institute Co-Founder Lakshman Achuthan explains "the rate of inflation is coming down, but it doesn't mean that prices levels have come down... They went up and they're just not rising as fast, they're rising slower."

Overall, Acuthan says that discretionary spending is softening, while non-discretionary spending, such as education and healthcare, remains "solid."

Watch the video above to hear what Acuthan says about what the cooling inflation data means for the possibility of rate cuts in 2024.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: We've got the latest few key pieces of data for the year today. Now, consumer sentiment, one of them, rising in December, over 13% to 69.7%. That's a sign that consumers were optimistic during the holiday season. This comes after the Fed's favorite inflation gauge. Core PCE showed prices cooling even more than expected in November. Joining us now, we've got Lakshman Achuthan who is the Economic Cycle Research Institute co-founder. Great to have you here as always.

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LAKSHMAN ACHUTHAN: Good to be here.

BRAD SMITH: We got two economic readings here on the day that give us a little bit more insight into how the consumer feels plus we got some earnings data that gives us even more of a color here on this situation here. What would you say is the kind of broad strokes state of the consumer at this point, given the readings that we've gotten?

LAKSHMAN ACHUTHAN: OK. So consumer, we're talking economy, that's softening. And you're seeing-- I mean, there's always-- you could always point to one thing going up or down. But I think the general picture is one of softening. And it's a reaction to the higher prices that we saw-- we've seen, right? So the rate of inflation is coming down. But it doesn't mean the price levels have come down, right? They went up, and they're just not rising as fast, they're rising slower.

And so that's what the consumer is really struggling with. And you'll see that at when you talk about a big ticket, rate-sensitive thing like a house or a car. And even in more discretionary things. So something you like doing, but you don't have to do. You might get a little edgy around that. And maybe that flows through to something as literal as athletic apparel, you know? Like you're seeing, for example, you're seeing some of that stuff. Non-discretionary stuff, that's solid, right? So education, health care, government. Those kind of things, they're really plugging along.