Inflation gauge favored by Fed showed core prices ticked higher in February
The Federal Reserve's preferred inflation gauge showed prices rose in February at a pace that continues to exceed the central bank's target level amid its ongoing efforts to tamp down inflation.
The Commerce Department on Friday reported that the personal consumption expenditures (PCE) index rose 0.3% from the prior month and 2.5% on an annual basis. Those figures were in line with the estimates of economists polled by LSEG.
Core PCE, which excludes volatile food and energy prices, rose 0.4% for the month and 2.8% from a year ago, slightly higher than estimates of 0.3% and 2.7%, respectively.
Federal Reserve policymakers are focusing on the PCE headline figure as they try to slow the pace of price increases to their target of 2%, though they view core data as a better indicator of inflation. Headline PCE was unchanged from January at 2.5%, while core PCE ticked higher from 2.6% last month.
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Prices for goods increased 0.4% on an annual basis in February, a slower pace than the 0.6% reported in January – though goods prices had been relatively flat or even declining in prior months. Prices for services were up 1% in February, a slightly slower pace than the 1.6% annual growth reported last month.
Wages and salaries increased 0.4% on a monthly basis in February, up from 0.2% a month ago.
The personal savings rate as a percentage of disposable income was 4.6% in February, up from 4.3% last month and an increase above the range of 3.3% to 4.3% it had been in the last half of 2025.
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The Commerce Department's report comes as the Federal Reserve is assessing economic data ahead of its next policy meeting in May as it monitors inflation and the health of the labor market.
Fed Chair Jerome Powell said at a press conference last week, when the Fed held rates steady for its second straight meeting, that the central bank isn't in a hurry to cut interest rates and will look to assess the impact of the Trump administration's tariffs on inflation.
"It looks like a ‘wait-and-see’ Fed still has more waiting to do," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. "Today's higher-than-expected inflation reading wasn't exceptionally hot, but it isn't going to speed up the Fed's timeline for cutting interest rates, especially given the uncertainty surrounding tariffs."
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The market's expectation is that the Fed will leave rates unchanged for a third straight time when it meets in early May. The probability of rates being held steady was a little more than 90% on Friday, up from over 85% a week ago, according to the CME FedWatch tool.