The core Personal Consumption Expenditures (PCE) Price Index is anticipated to increase by 0.3% month-on-month and 2.6% year-on-year for January. The Federal Reserve is expected to maintain its current monetary policy during upcoming meetings, with annual PCE inflation projected to decline slightly to 2.5%.
The US Bureau of Economic Analysis will release the PCE data at 13:30 GMT on Friday. This index serves as the Federal Reserve’s preferred inflation measure, focusing primarily on changes excluding volatile food and energy prices.
Analysts suggest that January may see a weaker core PCE advance compared to previous data, with forecasts indicating a decrease in annual inflation from 2.8% to 2.5%. Personal spending is also expected to drop, marking the first decline since March.
After a rate cut of 25 basis points in December, the central bank held interest rates steady in January, citing concerns over persistent price increases. Market participants anticipate a low chance of rate cuts after the upcoming PCE readings, with a 98% probability of unchanged policy in March.
Unexpected movements in the PCE index could lead to quick fluctuations in the US Dollar’s value. A reading of 0.4% or higher might bolster the Dollar, while below 0.2% could weaken it substantially.
While inflation impacts currency valuation and market dynamics, current expectations lean towards steady economic measures from the Fed. Further soft readings may prompt a reconsideration of policy adjustments later in the year.
Expectations for Friday’s PCE release suggest inflation pressures may ease slightly, with core PCE forecasted to rise by 0.3% on a monthly basis and slow to 2.6% over the year. Given that this measure excludes volatile food and energy prices, it provides a clearer view of inflation trends and remains the Federal Reserve’s preferred gauge. We are also anticipating personal spending to decline for the first time since March, reinforcing concerns that consumer demand could be cooling.
Core inflation has been stubborn in previous months, but January’s reading is expected to retreat further from December’s 2.8%, inching towards the Fed’s target. This aligns with the central bank’s stance of keeping policy steady after its last rate cut in December, when it opted to hold rates unchanged in January. With PCE data due at 13:30 GMT, market expectations for rate adjustments remain minimal in the short term—futures pricing suggests a 98% chance the Fed remains on hold in March.
If the data were to deviate sharply from forecasts, however, volatility could be swift. A stronger-than-expected 0.4% monthly increase might fuel US Dollar strength, signalling that inflation remains sticky. On the other hand, a lower-than-anticipated 0.2% or less could weaken the Dollar, reinforcing the notion that pricing pressures are softening and increasing discussions around potential policy shifts later in the year.
Monetary authorities will closely assess whether inflation trends justify a continued pause in policy adjustments. The persistence of price increases has been a consistent talking point, and fresh data will be critical in shaping how markets approach rate expectations across the next few months. A softer trajectory could begin shifting sentiment more firmly towards eventual easing measures, though abrupt policy shifts remain unlikely in the near term.
