The Federal Reserve declined to cut interest rates any further at its latest meeting—and the Fed’s preferred inflation metric now shows that the goal of 2% annual inflation remains elusive. 

In the latest monthly Personal Consumption Expenditures (PCE) report compiled by the Bureau of Economic Analysis, monthly inflation in the PCE price index (tracking costs of goods and services) was found to be 0.3% higher in December 2024. Excluding food and energy costs, the price index increased 0.2% monthly. Annually, the PCE price index increased by 2.6%, and by 2.8% excluding food and energy costs. 

These numbers are higher than the increases recorded in November, when the PCE Price Index increased by 0.1% monthly and by 2.4% annually.

These increases are also broadly consistent with the inflation increases found in the latest Consumer Price Index (CPI) reports, another monthly inflation gauge assembled by the U.S. Bureau of Labor Statistics. 

Harvard Economics Professor Jason Furman described the core PCE inflation results as a “whimper” in an X (formerly Twitter) post. 

“I’m still sticking with my view that underlying inflation is about 2.5%. But we’ll learn a lot in January, which is when a lot of the inflation has been booked in recent years,” Furman wrote.

According to the PCE, consumer spending increased by $133.6 billion (a 0.7% rise from November) in December, while personal income rose by only $92 million (0.4%). Housing remains a top consumer cost—of the various goods and services recorded in the report, housing and utilities experienced the highest monthly increase in spending (29.8%) during December 2024. Transportation services experienced the second-highest increase, at 25.9%.

Consumer spending on financial services and insurance saw a comparatively modest increase of 5.8%, while furnishings and durable household equipment saw the lowest increase, at 1.7%. Consumer spending on food services and accommodations saw an outright decline of 2.4% in December.

Dr. Lisa Sturtevant, chief economist of Bright MLS, noted after Freddie Mac’s latest mortgage rate update (where the 30-year rate was 6.95%) but before the latest PCE release, that increasing inflation will keep mortgage rates high—and future rate cuts off the table. 

“A key reason the Fed did not cut interest rates this week is because inflation remains above its 2% target level, and, in fact, has moved higher over the past three months amidst strong economic conditions,” Sturtevant wrote. “Those higher inflation expectations will mean mortgage rates are likely to remain in the high 6% range for longer than expected, though rates could bump around as more economic data comes out in the weeks ahead.”

The latest PCE reports, suggesting the trend of rising inflation continues, is unlikely to move the Fed’s stance. President Trump’s proposed tariffs (reported as 25% on Canada and Mexico) have also sparked concerns of higher inflation among economists due to the resultant higher costs on consumer goods. 

For the full PCE report, click here. 

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