Inflation Remains Above Fed’s Target as Market Watches for Policy Shifts

The latest inflation data suggests price pressures are persisting, with the Federal Reserve’s preferred metric rising as expected in December but still exceeding its 2% goal.

The core Personal Consumption Expenditures (PCE) index, which excludes volatile food and energy costs, increased by 0.2% from November—matching market forecasts and slightly above the previous month’s 0.1% gain.

Over the past year, core inflation remained at 2.8%, while overall PCE inflation edged up to 2.6% from 2.4% in November.

This update comes shortly after the Fed opted to pause its rate-cutting cycle following three consecutive reductions. Chair Jerome Powell acknowledged that inflation is still “somewhat elevated,” signaling that the central bank is waiting for further data before adjusting its policy stance.

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With economic policies in flux, analysts believe the Fed is holding off on major moves until there is more clarity on trade and fiscal developments. Powell pointed to potential shifts in tariffs, immigration policies, and regulatory measures as key variables influencing inflation trends.

Further uncertainty looms as President Trump has announced plans to introduce a 25% tariff on imports from Mexico and Canada starting February 1. Economists warn that such measures could prolong inflationary pressures, complicating the Fed’s path forward.

Alexander Zdravkov