Economists expect the Federal Reserve’s preferred inflation measure–due Friday–to cool to the slowest pace since June. But while I think markets will cheer, it’s too soon to look for any change from the Federal Reserve on interest rate cuts. That will have to wait until April at least before the central bank will get a better idea of exactly what tariffs President Donald Trump will increase and by how much.
The core Personal Consumption Expenditures (PCE) index-—which excludes food and energy price—-is expected to show that inflation rose at a 2.6% annual rate in the year through January. Overall PCE inflation likely eased on an annual basis as well, according to a Bloomberg survey of economists. In December the core PCE index rose at a 2.8% annual rate and the all-items index rose at a 2.4% rate. (Remember that the PCE inflation data runs a month behind the Consumer Price Index and that the two inflation indexes don’t always track together. Right now CPI inflation is running ahead of PCE inflation because the CPI gives more weight to shelter prices, which have been running really hot recently. As of January 2025, the core annual CPI inflation rate in the United States is 3.3%. The all-items annual CPI inflation rate was 3.0% in January.)
On Friday, the Commerce Department will also release the latest trade balance for goods. The U.S. deficit in the trade of goods widened to a record in December. This trade deficit–which is much worse than if you include the value of services sold by U.S. companies to customers abroad–seems to be a key factor in President Donald Trump’s decision on raising tariffs.
