Federal Reserve Gauge Shows Inflation Ticked Up in December

Prices rose more than the Federal Reserve’s goal last month, and the central bank just paused its campaign of rate cuts. Investors are watching to see if inflation slows enough to justify keeping rates steady a bit longer.

Key Facts:

  • The personal consumption expenditures (PCE) index increased 0.3% in December, and 2.6% year over year.
  • Core PCE, which excludes food and energy, grew 0.2% in December and 2.8% from a year ago.
  • Food prices rose 1.6% annually, while energy prices fell 1.1%.
  • The Fed has lowered rates three times recently, but decided to hold them at 4.25% to 4.5% this week.
  • Markets predict an 82% chance the Fed will keep rates unchanged in March.

The Rest of The Story:

The Commerce Department’s latest report confirms that inflation remains above the Federal Reserve’s preferred 2% target, even though it is not climbing as fast as it was earlier this year.

Headline PCE moved from 2.4% in November to 2.6% in December, while core PCE stayed at 2.8% for the third straight month.

Goods prices stayed flat, but services were up 3.8% from a year ago.

Wages and salaries rose 0.4% in December, which is still growth but a bit slower than the prior two months.

The personal savings rate dipped to 3.8%, falling from 4.1% in November, suggesting consumers have fewer reserves to handle future cost increases.

Fed officials decided to hold rates steady for now, pausing what had been a series of cuts intended to support the economy during uncertain times.

Fed Chair Jerome Powell indicated that inflation is still somewhat elevated, so policymakers will continue to watch closely for any signs of stronger price pressures.

Commentary:

With inflation stubbornly above target levels, there is reason to urge caution in all economic policymaking.

President Donald Trump will need to weigh every aggressive fiscal action to avoid worsening the situation. Even policies aimed at quick relief might have unintended results.

Balancing economic growth and inflation control will be vital for Trump.

The Bottom Line:

The Fed’s preferred inflation gauge still shows price growth beyond the 2% target.

How the central bank and any White House policies manage inflation in the coming months may shape the financial landscape ahead.

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