The Fed's favorite measure of inflation slowed a bit before the war. How will rates change
The personal consumption expenditures (PCE) index, the Federal Reserve's preferred measure of inflation, rose 2.8% year-on-year in February, the U.S. Bureau of Economic Analysis (BEA) reported. This was in line with the expectations of economists polled by Reuters: they had forecast a continuation of the annualized rate compared to what it was in January.
At the same time, the core PCE, which excludes volatile food and energy prices, slowed slightly in February to 3% year-on-year from 3.1% in January. The slowdown is explained by the high values of last year, which are now not included in the calculations, according to Reuters. On a monthly basis, prices rose 0.4% in both core and core terms - also in line with analysts' expectations. In January, the revised figures were 0.3% and 0.4% respectively.
The data show that U.S. inflation was elevated even before the U.S. war against Iran, which sharply boosted global oil prices, Reuters noted. The U.S. Federal Reserve's target for price growth is 2% per year.
The BEA also revealed updated data on US GDP in the fourth quarter of 2025 (this is the third estimate). Real gross domestic product grew by 0.5% year-on-year - a result down 0.2 percentage points from the second estimate. By comparison, there was a 4.4% increase in the third quarter.
On Friday, April 10, another measure of inflation, the Consumer Price Index (CPI) for March, will be released. Investors will be looking for the first signs of the economic consequences of higher oil prices due to the war between the United States and Iran, Reuters noted.
What to expect from the Fed
Money market participants now estimate the probability of a 25 basis point interest rate cut by the U.S. Federal Reserve at only 30% versus 56% just a day ago, Reuters cited LSEG data. Before the war, investors were counting on two rate cuts this year.
The nearest Fed meeting will be held on April 28-29. Traders estimate the probability of keeping the rate at the current level of 3.5-3.75% at 98.4%, shows the FedWatch tool from CME Group. At the same time, the remaining 1.6% is the option not to lower, but to raise the rate to 3.75-4%.
On April 8, minutes from the Fed's March meeting were released. They showed that a growing group of governors then believed that monetary tightening may be needed to combat inflation, which is still hovering above the regulator's 2% target, Reuters added.
This article was AI-translated and verified by a human editor
