The Federal Reserve’s key measure of inflation cooled slightly in January, giving investors a glimmer of hope for interest rate cuts after dismal economic reports earlier this month.
The personal consumption expenditures price index measure of price changes for consumers rose 2.5% over the past 12 months, according to data released by the Bureau of Economic Analysis on Friday.
Inflation ticked up 0.3% in January, according to the data.
The measure of price changes for consumers, excluding volatile food and energy prices — known as core PCE — rose 2.6% over the past year.
Friday’s results fell in line with economists’ expectations, and signaled easing inflation after a 2.6% year-over-year jump in December.
The moderate report comes as investors are preparing for the final trading day of the month after a volatile week that saw technology stocks drop significantly as President Trump’s threatened tariffs spooked markets.
Friday’s PCE report trails disappointing consumer and producer price reports earlier this month, both of which showed inflation leaping ahead unexpectedly in January.
Hotter inflation reports dashed investors’ hopes for interest rate cuts from the Fed, and even pushed some economists to warn that central bankers may consider rate hikes this year as stubborn inflation refuses to budge.
Fed Chair Jerome Powell has hinted this month that the central bank is not likely to lower rates anytime soon.
“We’re not quite there yet,” Powell said on inflation, while testifying before the House Financial Services Committee a few weeks ago. “So we want to keep policy restrictive for now.”
Just ahead of the PCE report on Friday, the vast majority of investors predicted the Fed would hold rates steady, with just 5.5% holding out hope for a quarter-point cut, according to CME FedWatch.
Earlier this week, Trump revealed that the hefty planned tariffs on goods from Mexico and Canada are “going forward.”
On Thursday, he announced the controversial taxes would take effect March 4 “as scheduled.”
Economists have warned the import tariffs could increase prices for US consumers and reheat inflation, which panicked investors.
The tech-heavy Nasdaq Composite — including Alphabet, Amazon and Microsoft — fell about 5.5% this month, fueled by a 5% drop this week.
Jensen Huang’s chipmaker Nvidia plunged by about 12% so far this week.
The S&P 500 slid 2.5% so far this week before the inflation report’s release, and the Dow dipped 0.4%.
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