March PCE Report Shows Mixed Inflation Signals, Casting Doubt on Fed Rate Cuts

• Core PCE holds at 2.6%, but past revisions highlight persistent inflation risks
• Headline PCE inflation beats forecasts, reducing chances of early Fed rate cuts
• Flat monthly core data contrasts with hotter past prints, clouding Fed’s outlook

Newly released U.S. inflation data from the Personal Consumption Expenditures (PCE) report presents mixed signals for markets and the Federal Reserve. While some figures point to cooling price pressures, others suggest inflation remains sticky enough to delay interest rate cuts. This could keep the Federal Reserve cautious ahead of its upcoming May meeting. 

The core PCE price index, which excludes food and energy, held steady year-over-year at 2.6% in March. This matched expectations but came against the backdrop of upward revisions to prior readings. 

At the same time, overall PCE inflation rose 2.3% year-over-year, higher than the 2.1% forecast. Month-over-month numbers showed even more contrast, with core prices flat the lowest monthly figure since April 2020.

Mixed Data Complicates Federal Reserve’s Policy Path

Although inflation is easing in some areas, it still hovers above the Fed’s 2% target. That complicates the path forward. The month-over-month rise in core PCE was 0%, below the expected 0.1%. 

However, February’s core PCE month-over-month figure was revised higher from 0.4% to 0.5%, showing stronger past momentum. This combination of flat current growth and hotter past data blurs the trend.

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Moreover, the upward revision of the prior year-over-year core PCE from 2.8% to 3.0% suggests a more persistent inflation problem. Investors had hoped for a more significant cooling trend. 

However, inflation continues to be sticky, especially in services, where price increases remain stubborn. These factors reduce the likelihood of a near-term rate cut by the Fed.

Political Pressure Mounts, but Fed Stays Firm

The central bank is also under political pressure. President Donald Trump has publicly criticized Fed Chair Jerome Powell for not cutting rates fast enough. At the same time, Powell is navigating the economic fallout of the administration’s tariffs, which have added to price volatility.

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Besides the political dynamics, the Fed faces the challenge of balancing economic growth with inflation control. Although the PCE report shows progress, it is not yet sufficient to shift the Fed’s cautious stance. The next policy meeting, scheduled for May 6–7, is unlikely to bring any rate cuts.