December’s PCE data reveals a concerning trend in U.S. inflation, with the headline rate climbing to 2.6%, its highest point in seven months and a significant deviation from September’s 3½-year low of 2.1%.
The monthly increase of 0.3% was the largest since April, though core PCE, which excludes volatile food and energy prices, remained stable at 2.8%. This persistent inflation, combined with a robust economy and strong labor market, has led the Federal Reserve to maintain higher interest rates, with officials suggesting rate cuts may be further delayed.
The inflation outlook is complicated by multiple factors, including the Federal Reserve’s updated forecast showing PCE inflation at 2.5% by the end of 2025, still above their 2% target. Adding to the uncertainty are the new Trump administration’s policies, particularly regarding trade and immigration, which could put upward pressure on prices.