Inflation in the United States has unsettled the markets a bit. Analysts are furrowing their brows, trying to gauge its impact on the economy. Still, let us not fall into full-blown pessimism. There is always hope for better days!
According to the latest reports, the US core Personal Consumption Expenditures (PCE) price index rose by 2.7% in February. This is the Federal Reserve’s preferred inflation gauge, one it watches closely. The current trend gives the Fed ample reason to delay any interest rate cuts until 2025.
As for the PCE index, it posted a 2.5% annual increase in February, unchanged from January, which is right in line with economists’ expectations. On a monthly basis, the PCE index rose by 0.3%.
Meanwhile, the core index, which excludes the more volatile categories like food and energy, climbed 2.8% year-over-year, a notch higher than January’s upwardly revised 2.7%. On a monthly basis, core PCE increased by 0.4%, surpassing January’s 0.3%.
These figures reflect growing concerns over President Donald Trump’s aggressive trade policy. The White House has recently imposed tariffs not just on rivals but also on longtime allies. In this context, many experts warn of mounting inflationary pressures and a possible decline in economic activity.
The Federal Open Market Committee (FOMC), which sets interest rates, left borrowing costs unchanged at its most recent meeting, citing rising uncertainty surrounding Trump’s upcoming policy moves. Analysts at ABN Amro expect to see a slowdown in economic growth and consumption amid a sharp drop in consumer sentiment caused by significant political uncertainty.
The bank also predicts a gradual cooling of the US labor market. ABN Amro revised its 2025 GDP growth forecast down to 1.7%, though it notes that this could be reassessed after April 2, when the new round of US tariffs takes effect. The bank concluded that financial stress among households was already playing a role in slowing economic growth for 2025. It warned that the newly introduced tariffs would further weigh on the economy while also driving inflation higher. According to its projections, the impact of these tariffs was likely to result in an average core PCE inflation rate of 2.7% in 2025, with a possible rise to 2.8% in 2026.
