The Federal Reserve's preferred inflation gauge was stable with an annual increase of 2.5% in February, with “core” prices excluding food and energy jumping to an annual increase of 2.8%.
Advances in the headline's personal consumption expenditure (PCE) price index were consistent with analysts' expectations, but the core growth was slightly hotter than expected, increasing inflation concerns.
Each month, PCE went 0.3% and Core PCE rose 0.4%.
The sustained power of inflationary pressures has been a concern for many investors, especially ahead of the widely anticipated tariff announcements from the Trump administration coming next week.
Trump announced that he would impose new “mutual” tariffs on US trading partners by April 2, in addition to import taxes on foreign cars, along with goods from Canada and Mexico.
“While the trend won't be for a few months, the recent rise in inflation ahead of next week's mutual tariffs is concerning and could cause problems. [Federal Reserve Chair] Jerome Powell's rate cut passes will be cut later this year,” wrote Damien McIntyre, a senior analyst at Federate Hermes Investment Company, in the commentary.
PCE prices eased to an annual increase of 2.5% in January, down from 2.6% in December, but rose until the fourth quarter of last year as the Fed lowered interest rates.
This helped the Fed's decision to suspend cuts from January. The Fed maintained a moratorium earlier this month, with interbank lending rates in the 4.25-4.5% range.
As inflationary pressures continue and growth outlook ease, concerns about “male dogs” in the economy are becoming more common.
Former Fed economist Claudia Sahm said in commentary on Friday that there was a “stave bubble” in the Fed's baseline forecast released last week.
“My 'whim' characterization reflects a relatively modest hit in growth and increased inflation this year, as well as a quick low-pane return next year. These are not stagflation predictions, but they are shifts,” she writes.
In a summary of economic forecasts released earlier this month, the Fed predicted a demonstration cut in US economic output this year, reducing gross domestic product (GDP) in 2025 from 2.1% to 1.7%.
Central bankers have seen PCE inflation rise to 2.7% from the remaining 2.5% this year.
However, the federal funding target has not changed to 3.9% as the Fed did not adjust for the number of interest rate cuts it expects to implement this year. This means two additional quarterly point rate reductions this year.
