Fed’s Preferred Inflation Gauge Meets Expectations in December, Inflation Still Above 2% Target
Washington, D.C., January 31, 2025 – The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, showed price increases aligned with expectations in December, underscoring that inflation remains above the central bank’s 2% target.
Core Inflation Holds Steady at 2.8%
The core PCE index, which excludes volatile food and energy prices and is closely monitored by the Fed, rose 0.2% from November, matching Wall Street’s forecasts. This was a slight uptick from the 0.1% increase recorded in November.
On a year-over-year basis, core PCE inflation stood at 2.8%, unchanged from November and consistent with expectations. Meanwhile, the overall PCE index rose 2.6% annually, marking an increase from the 2.4% recorded in the previous month.
Federal Reserve Holds Interest Rates Steady
The latest inflation data comes just two days after the Federal Reserve decided to pause its interest rate cuts, following three consecutive reductions in previous meetings. Fed Chair Jerome Powell reiterated concerns about inflation, stating that it remains “somewhat elevated relative to our 2 percent longer-run goal” during a press conference on Wednesday.
Economists suggest that the Fed is waiting for further inflation data and clarity on potential economic policy shifts before making any further rate decisions.
Tariffs, Policy Uncertainty Could Impact Inflation
Powell also pointed to significant policy uncertainties, particularly in four key areas: tariffs, immigration, fiscal policy, and regulatory policy. He acknowledged that these factors could influence inflation trends moving forward.
A major development on tariffs is expected over the weekend, as President Donald Trump announced plans to impose a 25% tariff on imports from Mexico and Canada, effective February 1. Many analysts warn that such tariffs could contribute to sustained inflationary pressures, making the Fed’s job of controlling inflation even more challenging.
Market Reactions and Economic Outlook
Investors and economists are now closely watching upcoming economic data releases, which could influence the Fed’s next moves on interest rates. While inflation appears to be moderating, any unexpected spikes—particularly due to new tariffs or supply chain disruptions—could impact future rate decisions.
Source : Swifteradio.com
