Federal Reserve's Inflation Gauge Shows Moderate Price Increases, Remains Above Target
The latest reading of the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, indicates that prices rose at an expected rate in December. The "core" PCE index, excluding food and energy costs, increased by 0.2% from the previous month, meeting market expectations. This increase was slightly higher than the 0.1% rise recorded in November.
Over the past year, core prices have risen by 2.8%, in line with expectations and unchanged from the November reading. Overall PCE increased by 2.6% on an annual basis, a slight uptick from the 2.4% growth seen in November.
The inflation data follows the Federal Reserve's decision to pause its interest rate-cutting cycle after three consecutive rate cuts. Fed Chair Jerome Powell noted that inflation remains "somewhat elevated" compared to the Fed's 2% target.
Economists suggest that the Fed is likely awaiting further inflation data and clarity on the Trump administration's potential tariff plans. President Trump has announced plans to impose a 25% tariff on imports from Mexico and Canada starting February 1. Tariffs are expected to have an impact on inflation, as they increase the cost of goods.
The Federal Reserve will continue to monitor inflation data and economic conditions as it makes decisions about future interest rate actions.