The Federal Reserve’s favored inflation metric matched the central bank’s higher than normal forecast in February, according to Commerce Department data released Friday morning, as inflation still struggles to come down to its pre-pandemic norm – and President Donald Trump’s tariffs throw a new curveball to policymakers.
Inflation has struggled to come down to its pre-pandemic norm, and the Federal Reserve doesn’t ... More
Annual inflation was 2.8% last month, according to the core personal consumption expenditures (PCE) index, the Fed’s preferred measure of inflation as it excludes price changes in the more volatile food and energy categories and it’s more comprehensive than its rival consumer price index (CPI).
Economists expected core PCE inflation of 2.7%, according to median forecasts tracked by FactSet, while Fed Chairman Jerome Powell said last week the U.S. central bank anticipated a 2.8% year-over-year increase.
Core PCE inflation is still far above central bankers’ target of 2%, a threshold it has not met since February 2021.
Overall PCE inflation was 2.5% in February, matching the Fed’s and consensus economists’ matching projections of 2.5%.
The PCE index increased 0.3% from January to February and the core measure rose by 0.4%, adjusting for seasonality, compared to economist forecasts of a 0.3% month-over-month increase.
4.6%. That’s the proportion of Americans’ disposable income they saved in February, according to the Commerce Department’s personal saving rate metric released Friday. The saving rate averaged 5.7% from the turn of the millennium through January.
How President Donald Trump’s often shifting tariffs will affect inflation. Economists mostly agree the import taxes will at least temporarily increase consumer prices, though the extent remains to be seen considering Trump has yet to reveal what he’s teased as his most comprehensive trade policy yet, reciprocal tariffs. Fed staff expect core PCE inflation to come in at 2.8% by December, according to median quarterly economic projections released last week, up from a 2.5% forecast last quarter for the end of 2025 and a 2.2% projection a year ago. A “good part” of the higher inflation expectations come from tariffs, Powell said last week.
Core PCE inflation peaked at a four-decade high of more than 5% in 2022, as prices surged globally as several inflationary pressures peaked simultaneously, including COVID-19 related supply chain snags and soaring energy prices following Russia’s invasion of Ukraine. Other than the most glaring consequence of bringing higher everyday price tags for consumers, sticky inflation has also had the undesirable effect of keeping interest rates higher, as the Fed typically keeps borrowing costs elevated as a method to cool inflation. The Fed has yet to declare victory on inflation, and has kept the federal funds rate steady at 4.25% to 4.5% since December, higher than it ever stood from 2008 to 2022.