The Fed’s Favorite Inflation Measure Remains Elevated

Despite some reports showing lower trends in inflation, the Federal Reserve’s preferred inflation measure continues to remain elevated ahead of possible complications from geopolitical tension, according to the latest data from the Bureau of Economic Analysis.

The Personal Consumption Expenditures (PCE) price index grew 0.3% in January, with annual inflation at 2.8%. This is a slight decrease from the 0.4% increase seen in December, when annual inflation was 2.9%
The PCE price index excluding food and energy—aka core inflation—increased 0.4% in January, with annual core inflation coming in at 3.1%. This represents a slight uptick from the annual core inflation reading of 3% in December.

Jason Furman, an economics professor at Harvard, characterized January’s report as another “hot month for PCE inflation” in a thread on X.

He noted that core PCE inflation remains above that of the Consumer Price Index (CPI). The recent CPI for February has been trending lower as of late, reporting annual inflation at 2.4% and annual core inflation at 2.5%.

Furman said that “in sum, I continue to think a bunch of inflation is transitory tariff-related and some (but not complete) truth in the lower readings on CPI inflation.”

“But it would be foolish for the Fed to count on it, they cut too much last year, and should not be thinking of more cuts now,” he continued.

Economists also noted distinct worries for the future of inflation as the U.S. faces geopolitical tensions.
Realtor.com® Senior Economist Jake Krimmel compared the current situation to what was seen last spring—geopolitical tensions, supply chain concerns and rising inflation—which could be enough to “stall momentum.”
“As we saw last year, the housing market is particularly sensitive to swings in confidence,” he concluded. “Even though today’s inflation data look benign, the question heading into spring is whether renewed uncertainty is enough to sideline buyers and sellers once again in 2026.”

In his commentary on the CPI report, Furman affirmed that the Fed will most likely maintain its “wait and see” approach, “with a high bar for an interest rate move.”