Inflation Stays Elevated, Fed Rate Cuts Unlikely/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Inflation remained stubbornly high in February as core prices rose 2.8% annually, limiting hopes for Fed rate cuts. Consumer spending ticked up slightly after January’s sharp decline, but adjusted for inflation, growth was minimal. Rising tariffs and weak consumer confidence point to ongoing economic uncertainty in 2025.
U.S. Inflation Still Elevated as Consumer Spending Slows Quick Looks
- Core inflation rose 2.8% year-over-year in February
- Overall inflation held at 2.5%, matching January’s pace
- Inflation-adjusted consumer spending rose just 0.1%
- Spending rebound follows January’s steepest drop in 4 years
- Fed interest rate cuts appear unlikely in current environment
- Trump tariffs expected to push inflation higher in coming months
- Consumer incomes rose, but savings also increased
- Consumer confidence near decade-low amid economic uncertainty
Inflation Stays Elevated, Fed Rate Cuts Unlikely
Deep Look
Inflation in the United States remained stubbornly high in February, with a key price gauge watched by the Federal Reserve showing little sign of easing — a troubling sign for policymakers and consumers alike. At the same time, consumer spending rose only slightly, signaling continued caution in the face of economic uncertainty and higher prices.
According to Friday’s report from the Commerce Department, the Personal Consumption Expenditures (PCE) price index rose 2.5% in February from a year earlier, unchanged from January. The core PCE index, which strips out volatile food and energy prices, rose 2.8%, up slightly from 2.7% the month before — marking the highest increase in nearly a year.
Core inflation is a more reliable indicator of underlying price trends, and its persistence above the Federal Reserve’s 2% target suggests that the central bank is unlikely to reduce interest rates soon, despite growing political pressure.
“This is a classic case of ‘inflation too hot and spending too cold,’” said Stephen Brown, economist at Capital Economics. “It’s hard to imagine the Fed moving to cut rates this year.”
Spending Weak Despite Income Growth
Consumer spending, which accounts for nearly 70% of the U.S. economy, increased by 0.4% in February, recovering modestly from a sharp drop in January — the steepest in four years. However, after adjusting for inflation, spending rose by just 0.1%, underscoring the fragility of demand heading into the second quarter.
In contrast, personal income rose by 0.8% in February — the second straight month of strong gains. That boost in income helped push up the savings rate, indicating that many Americans are choosing to set aside money rather than spend, possibly reflecting deepening uncertainty.
“Savings went up, consistent with reports of flagging consumer confidence and increased economic anxiety,” said Carl Weinberg, chief economist at High Frequency Economics.
Tariffs and Policy Uncertainty Add to Economic Strain
The report comes as President Donald Trump’s tariff policies begin to ripple through the economy. Trump has implemented 20% tariffs on all Chinese imports, along with 25% duties on steel, aluminum, and cars — moves widely expected to push inflation higher in the coming months.
Federal Reserve Chair Jerome Powell recently said the inflationary impact of tariffs may be temporary, but added that the current economic outlook is “unusually uncertain” due to shifting White House policies.
Many economists now expect inflation to tick higher throughout the year as the full effects of the tariffs set in — complicating the Fed’s balancing act between promoting growth and containing inflation.
Public Sentiment Turns Pessimistic
While inflation has declined from its 2022 peak, it remains a key concern for Americans. A Pew Research Center survey last month found that 63% of Americans still see inflation as a “very big problem.” Consumer and business confidence have dropped sharply since Trump’s recent tariff rollout.
On Tuesday, a key measure of economic sentiment fell to a 12-year low, with many respondents rating the U.S. economy as “fair” or “poor.”
Retailers are also feeling the effects. Lululemon on Thursday warned that low consumer confidence would weigh on sales, echoing earlier concerns from Nike, Target, and Walmart, which have all dialed back expectations for 2025.
Despite a solid labor market and rising incomes, the reluctance to spend signals that inflation is still shaping behavior — not just policy.
With economic growth likely to slow from the 2.4% pace seen in the final quarter of 2024, and inflation refusing to ease, the road ahead for both consumers and the Fed looks increasingly complex.
You must Register or Login to post a comment.