Inflation Rises In Key Report Tracked By Federal Reserve

Inflation rose again in December as consumers continued to see price increases but some economists see a silver lining in the numbers.

The personal consumption expenditures (PCE) price index rose 2.6 percent in the 12 months to December, up from 2.4 percent in November, according to the Bureau of Economic Analysis.

From the preceding month, the PCE price index for December increased 0.3 percent. Excluding food and energy, it increased 0.2 percent.

The PCE is a key metric the Federal Reserve uses in determining a key lending rate.

Inflation continues to rise from the Fed's long-term target of two percent. This is the third month in a row with an inflation increase in the report.

The elevated inflation levels have forced the Fed to pause a series of interest rate cuts it started last year.

On Wednesday, policymakers decided to keep the Federal Funds rate, which is closely tied to credit cards and other consumer loans, steady at a rate between 4.25 and 4.50 percent.

It had cut the rate by a full percentage point with three rate cuts between September and December 2024..

Some economists expect inflation to cool in the months ahead and indicate that the numbers released Friday are not strong enough to deter future cuts.

"The report showed slightly higher inflation, but it was in line with expectations, meaning it won't disrupt the narrative of a potential Fed rate cut in the first half of the year," Jochen Stanzl, Chief Market Analyst at CMC Markets wrote in a note to clients.

"This reinforces the Fed's reluctance to give clear signals on when it will lower rates and highlights the prudence of maintaining a strict, wait-and-see approach," he added.