Inflation has eased from its peak in 2022 but remains above the Federal Reserve’s 2% goal. The upcoming February PCE report is projected to show inflation stabilizing at 2.5% year-over-year.
Analysts predict that core inflation, which excludes volatile food and fuel prices, will tick up to 2.7% annually from 2.6% in January. Forecasts suggest that inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, will continue to exceed the Fed’s benchmark, even as economic uncertainties persist.
February PCE Report Key Insights
- Report Release Date: Friday, March 28, at 8:30 a.m. EDT
- PCE Price Index Forecast: A 0.3% rise in February, unchanged from January
- Core PCE Forecast: A 0.3% monthly increase, matching January’s data
- Year-over-Year Inflation: Expected to hold at 2.5%
- Core PCE Year-over-Year: Predicted to rise 2.7%, slightly up from 2.6%
Services Inflation on the Rise
Morningstar senior U.S. economist Preston Caldwell notes that service-sector inflation spiked in January, particularly in discretionary areas like travel and entertainment. This trend is expected to continue into February, with core services inflation reaching its highest point since March 2024.
Caldwell attributes this inflationary pressure to resilient consumer spending in late 2024, enabling businesses to justify price hikes. However, he warns that a slowdown in spending could temper inflation moving forward.
Diverging Inflation Predictions
While the consensus anticipates a 0.3% rise in both PCE and Core PCE, Comerica Bank’s chief economist Bill Adams has a more cautious outlook. His forecast suggests PCE will rise by just 0.2%, with core PCE increasing by only 0.1%. Adams believes February could bring some relief after temporary inflationary factors in January.
Adams also highlights consumer sentiment as a point of concern, with recession probabilities now estimated at 1 in 3—higher than the historical average of 1 in 5 over the past 20 years. Uncertainties surrounding fiscal and trade policies have further complicated economic forecasts.
Fed’s Interest Rate Path
Futures markets currently expect the Federal Reserve to maintain interest rates at its next meeting, following similar decisions earlier in 2025. Analysts predict the first potential rate cut could come in June, with Adams suggesting July as a more likely timeline. This marks a shift from late 2024, when expectations for a rate cut by May were over 60%.
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