The latest reading of the Federal Reserve's preferred inflation gauge showed prices rose on a monthly basis but dropped year over year, which should keep interest rates on hold when the central bank meets next in March.
The "core" Personal Consumption Expenditures (PCE) index, which strips out food and energy costs, rose 0.3% from the prior month during January, but that rise was in line with expectations. Prices rose 0.2% in December.
On an annual basis, core prices rose 2.6% year-over-year, which was also in line with expectations. That was down from the annual increase of 2.8% in December.
The data show a more muted pace of price increases for the month of January than a separate measure from the Consumer Price Index (CPI), which showed the largest rise in core prices since April 2023.
The PCE data may offer Fed officials more solace after the January CPI data caused many policy makers to question whether the hotter-than-expected reading was a bump in the road or a new trend.
Officials are now looking for clear trend line that shows progress in bringing inflation back down to their 2% goal as they digest the effect of new economic policies from the Trump administration on trade, taxes and immigration.
Friday's PCE inflation reading is the last Fed officials will get before they convene for their next policy meeting on March 18-19.
The central bank is all but certain to hold rates steady for the second consecutive meeting this year after cutting rates by 100 basis points over the course of three consecutive meetings at the end of 2024.
Markets are not pricing in any rate cuts until June, as they also digest a survey this week that showed short-term inflation expectations have surged while consumer confidence has fallen.
Richmond Fed president Tom Barkin said Tuesday that he wants to keep interest rates "modestly restrictive" until he gains more confidence inflation is returning to the central bank's 2% goal, warning about lessons learned from the 1970s.
Kansas City Fed president Jeff Schmid said Thursday he’s grown more cautious about inflation continuing to drop as inflation expectations have surged recently.
“Now is not the time to let down our guard," Schmid said. "It could be argued that some of the factors driving up inflation expectations are likely one-off transitory developments, but again given recent experience, I am not willing to take any chances.”
St. Louis Fed president Alberto Musalem also aired some concerns about inflation, saying that he wants to monitor economic data and the outlook before making any more changes to interest rates.
Story Continues
