But it didn’t change investors expectations for rate cuts.
The Federal Reserve’s preferred gauge for inflation, personal consumption expenditures (PCE), came in as expected in February, rising 2.5% over the past 12 months and 0.3% for the month.
That was the same as January and in line with economists’ expectations. But investors may have been hoping for PCE inflation to cool, following the lead of the consumer price index (CPI), which showed that the inflation rate dropped from 3.0% to 2.8% in February, the first decline in five months.
Also disappointing was the increase in the core PCE, which excludes food and energy prices. The Fed typically puts more weight on the core PCE, as energy and food prices are more volatile month to month.
Core inflation rose 0.4% in February, which was more than the 0.3% increase that was anticipated. It was the highest monthly increase in the core PCE since January of 2024.
The 12-month gain also came in hot at 2.8% in February, up from 2.6% in January. It was also higher than the 2.7% that economists’ had anticipated.
The cost of goods jumped 0.2% in February, after rising 0.5% in January. Within goods, durable goods ticked up 0.4% in February after rising 0.3% in January while nondurable goods rose 0.1% after climbing 0.6% in January.
Prices for services increased 0.4% in February, up from 0.3% in January. Food prices were flat after rising 0.3% in January, while energy prices rose 0.1% after climbing 1.3% in January.
No surprises
The February inflation numbers were in line with what economists at Vanguard anticipated, as they targeted 2.5% for the overall PCE and 2.8% for the core PCE.
“Increases in furniture and household equipment, other durables, and clothing and footwear are likely,” vanguard economists said. “Slowdowns in motor vehicles, recreation goods, and other non-durables are anticipated. We think heightened goods prints in Q1 are likely reflective of increased tariff uncertainty as firms preemptively adjust prices.”
The Trump administration is expected to launch new tariffs on April 2, so investors will be watching what impact that has on prices and inflation.
For now, the PCE results did not move the needle in terms of investors’ expectations for rate cuts. Some 86.3% of interest rate traders say rates will remain the same in February according to CME FedWatch, little changed from 88.4% before today’s PCE release.
Most continue to target June as the timeline for the next rate cut. About 57.7% anticipate a 25-basis-point rate reduction in June, with 8.3% calling for a 50-point cut. Prior to the PCE print, it was 58.4% expecting a quarter point cut while 7.1% saw a half-point reduction.
Markets opened lower on Friday with the S&P 500 down about 20 points, or 0.4%, while the Dow was off 200 points, or 0.5%, and the Nasdaq dropped 90 points or 0.5%.
