US Inflation Holds Steady as Core PCE Rises in February

Annual inflation in the United States, measured by the Personal Consumption Expenditures (PCE) Price Index, remained at 2.5% in February, aligning with both market expectations and January’s reading, according to the US Bureau of Economic Analysis (BEA). The core PCE Price Index, which excludes food and energy costs, saw a year-over-year increase of 2.8%, surpassing the projected 2.7% and exceeding the previous month’s rise of 2.7%. On a monthly basis, the PCE Price Index increased by 0.3%, while the core PCE Price Index advanced by 0.4%.

Additional data revealed that personal income grew by 0.8% in February, while personal spending rose by 0.4%. Following the report’s release, the US Dollar remained resilient, with the USD Index climbing 0.12% to 140.40.

Federal Reserve Policy Outlook and Market Expectations

The BEA was scheduled to release the PCE Price Index data at 12:30 GMT on Friday, with markets anticipating a 0.3% monthly increase and a 2.7% annual rise in the core index. Projections also suggested that headline PCE inflation would hold steady at 2.5%. Given these figures, analysts largely expected the Federal Reserve to maintain its policy stance in May.

Federal Reserve Chairman Jerome Powell had previously commented on the inflation outlook, suggesting that tightening monetary policy might not be necessary if inflationary pressures eased naturally. He indicated that upcoming data would clarify whether recent increases in goods inflation were driven by tariffs.

Long-Term Projections and Rate Expectations

The Federal Reserve maintained interest rates at 4.25%-4.50% in March. The updated Summary of Economic Projections (SEP) suggested that policymakers anticipated a total rate reduction of 50 basis points in 2025. Additionally, inflation forecasts for the end of 2025 were revised upward, with PCE inflation expected to reach 2.7% and core PCE inflation projected at 2.8%, compared to the previous estimate of 2.5% in December’s SEP.

Financial analysts had noted that core PCE inflation was likely to remain persistent, predicting a 0.3% monthly rise for February, consistent with January’s increase. It was observed that while the core Consumer Price Index (CPI) rose at a slower pace of 0.23% month-over-month, headline PCE inflation was expected to be slightly lower at 0.28%. Personal spending, which had contracted for the first time since March 2023, was anticipated to show partial recovery.

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