Inflation Remains Above Target as Fed Pauses Rate Cuts
The latest inflation data from the Federal Reserve’s preferred gauge, the Personal Consumption Expenditures (PCE) index, shows prices rising in line with expectations in December. This marks a continued trend of inflation above the Fed’s 2% target.
Core Prices Rise 0.2%
The “core” PCE index, which excludes food and energy costs, increased 0.2% from the previous month, meeting Wall Street’s expectations. This is a higher rate than the 0.1% increase seen in November. Over the past year, core prices have risen 2.8%, unchanged from November and in line with expectations.
Overall PCE Sees Pickup
On a yearly basis, overall PCE increased 2.6%, a pickup from the 2.4% seen in November. This reading comes just two days after the Federal Reserve paused its interest rate-cutting cycle, following three consecutive rate reductions.
Fed Chair Weighs In
Fed Chair Jerome Powell described inflation as “somewhat elevated relative to our 2% longer-run goal” during his press conference on Wednesday. Economists believe the Fed is waiting for more inflation data and a clearer picture of Trump’s potential tariff plans before making its next move.
Tariff Uncertainty Looms
Further news on tariffs, which could keep inflation above the Fed’s target, is expected over the weekend. President Trump has announced plans to impose a 25% tariff on imports from Mexico and Canada on February 1. This uncertainty has led to elevated concerns among economists, who are closely watching the situation.
A Wait-and-See Approach
As the Fed takes a pause, it’s clear that the central bank is adopting a wait-and-see approach, carefully monitoring inflation data and policy shifts before making its next move. With inflation remaining above target, it’s likely that the Fed will continue to keep a close eye on prices in the coming months.
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