U.S. Inflation: Fed’s Preferred Gauge Edges Up to 2.8%

The Federal Reserve’s preferred inflation gauge ticked up slightly in December, as price growth remains stubbornly above the central bank’s 2% annual target.

U.S. inflation, measured by the Personal Consumption Expenditures (PCE) Price Index, rose to 2.6% year-over-year in December, up from 2.4% in November, according to data released Friday by the U.S. Bureau of Economic Analysis (BEA).

The core PCE Price Index, which excludes volatile food and energy prices, increased by 2.8% over the same period, matching November’s reading and market expectations. On a monthly basis, core PCE rose 0.2%.

The Federal Reserve’s preferred inflation measure edged up in December, underscoring persistent price pressures above the central bank’s 2% target. As a result, the Fed is keeping interest rates unchanged until inflation shows clearer signs of improvement.

Economists had projected a 2.6% annual increase in PCE and a 0.3% monthly rise in the metric tracking consumer spending on goods and services, according to Dow Jones data.

This marks the 46th consecutive month that core PCE inflation has remained above 2.5%, highlighting a historically prolonged period of elevated prices for Americans. Between 2008 and 2020, this measure consistently stayed below 2.3%.

A Crucial Statement

“It looks like we’re set up to make progress, but being set up for it is one thing—achieving it is another,” Fed Chair Jerome Powell said at a press conference on Wednesday, reaffirming that the Fed’s goal is “2%, and we do indeed intend to return sustainably to 2%.”

This comes as the S&P 500 reaches all-time highs, raising the risk that prolonged higher interest rates could trigger volatility or market declines.

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Powell’s remarks followed the Fed’s decision on Wednesday to hold interest rates steady, concluding its first meeting since July without a rate cut. The central bank cited limited progress on inflation as the reason for maintaining its current policy stance.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.