The US Core Personal Consumption Expenditures (PCE) Price Index, announced on February 28, 2025, has become a critical data closely followed by economists and market participants. This index, one of the most important indicators in the US Federal Reserve's (Fed) inflation assessments, is of great importance in terms of the direction of inflation and the Fed's monetary policy decisions.
January Core PCE Data
The US Core PCE Price Index increased by 2.6% on an annual basis in January. This rate was in line with market expectations and was lower than the 2.9% increase in the previous month. On a monthly basis, an increase of 0.3% was observed. There was a monthly increase of 0.2% in December, and the January data show that inflation continues to accelerate, albeit slowly.
The Fed and Its Impact on Monetary Policy
The US Federal Reserve considers the Core PCE data as a critical indicator to understand the course of inflation when making monetary policy decisions. The Fed's inflation target is 2% and since the latest data is close to this target, markets do not expect a radical change in interest rate policies. However, if inflation remains under control, the issue of when the Fed will start the interest rate cut process remains on the agenda.
What to Expect in the Future?
Economists are evaluating what kind of policy the Fed will follow in the upcoming period by taking into account employment and growth indicators as well as inflation data. Market expectations are that if inflation remains under control, interest rate cuts may be on the agenda in the second half of 2025. However, global economic developments and geopolitical risks continue to be important factors that may affect the Fed's decisions.
The 2.6% annual increase in the US Core PCE Price Index indicates that inflation is close to the Fed's target levels. This situation is interpreted as the Fed may continue its tight monetary policy but create space for interest rate cuts in the near future.
Author: Besim Şen
