PCE Inflation Data Hints at Fed Rate Cuts

PCE Inflation Data Shows Modest Rise, Fueling Hopes for Fed Rate Cuts

March 29, 2025

The latest Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, showed a modest increase in February, reinforcing expectations that the central bank may consider interest rate cuts later this year.

According to data released Friday by the Bureau of Economic Analysis, the core PCE price index—which excludes volatile food and energy prices—rose 0.3% in February from the previous month and 2.8% from a year earlier. Both figures were in line with economists’ forecasts, suggesting inflation continues to cool gradually.

The headline PCE index, which includes all categories, increased by 0.4% month-over-month and 2.5% annually, slightly higher than January’s readings due to rising energy costs.

Fed’s Next Move in Focus
The latest figures provide some relief for policymakers as inflation remains on a downward trend after peaking in mid-2022. Fed Chair Jerome Powell has repeatedly emphasized the need for sustained evidence of cooling inflation before considering rate reductions.

'Today’s report doesn’t dramatically change the outlook, but it keeps the Fed on track for potential rate cuts in the second half of the year,' said Sarah Wilkins, chief economist at Sterling Financial. 'If labor market conditions soften further, we could see the first cut as early as June.'

Markets reacted cautiously, with stock futures edging slightly higher while Treasury yields remained steady. Investors are currently pricing in a nearly 70% chance of a rate cut by the Fed’s June meeting, according to CME Group’s FedWatch Tool.

Consumer Spending Holds Steady
Alongside inflation data, the report showed consumer spending rose 0.4% in February, signaling resilient economic activity despite higher borrowing costs. Wage growth also saw a slight uptick, supporting household budgets amid easing price pressures.

However, some economists warn that geopolitical risks and fluctuating commodity prices could still disrupt the disinflation trend. Oil prices have climbed in recent weeks due to supply concerns, which could push inflation higher in the coming months.

The Fed’s next policy meeting is set for May 1, where officials are expected to hold rates steady while assessing whether inflation is on a sustainable path toward their 2% target.

—Reporting by [Your Name], Financial Times

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