As commodity prices rebound and energy costs rise, inflationary pressures are re-emerging in the United States. Market consensus predicts that the upcoming February Personal Consumption Expenditures (PCE) price index will show that price growth remains above the Federal Reserve's long-term 2% target, potentially forcing the central bank to maintain its high-interest-rate policy at the upcoming policy meeting.
According to FactSet's consensus estimates, economists forecast the February PCE price index to increase by 0.4% month-over-month, a significant rebound from January's 0.3% monthly gain. The year-over-year PCE reading is expected to rise by 2.8%, matching the previous figure.
The core PCE index—which excludes volatile food and energy components and is the Fed's preferred inflation gauge—is projected to increase by 0.4% month-over-month (unchanged from the prior reading) and 3.0% year-over-year (down from 3.1%). This indicates that inflation remains highly persistent.
Morningstar senior economist Preston Caldwell noted that although the PCE index assigns a lower weight to energy than the Consumer Price Index (CPI), persistently high core inflation could push the overall March PCE reading to 3.2%, the highest level since September 2023.
Beyond energy, rebounding goods prices have become a new driver of inflation. Analysts from both Goldman Sachs and Bank of America agree that goods inflation strengthened significantly in February, driven by tariff policies and price increases in specific categories such as software. Bank of America predicts that core goods prices may have risen by as much as 0.8% to 0.9% in February, far exceeding earlier expectations.
Additionally, Deutsche Bank highlighted the stubbornness of "supercore services inflation" (excluding housing, energy, and food). While some volatile goods categories have pushed short-term data higher, the continued strength in services prices suggests inflation is unlikely to return to the Fed's desired range in the near term.
Although CPI data earlier this year once suggested a moderation in price pressures, analysts warn that oil price spikes resulting from conflicts involving Iran could impact future inflation trends.
With inflation data still running hot, economists almost universally expect the Fed to adopt a "wait-and-see" approach.
Currently, the CME FedWatch Tool indicates that more than 97.4% of traders expect the Fed to maintain the federal funds rate within the 3.50%–3.75% range at its April 29 meeting. This would mark the third consecutive meeting in which the central bank has paused rate adjustments.
Deutsche Bank economists pointed out that while the rebound in March nonfarm payrolls provided economic resilience, long-term inflation risks from rising energy prices are putting pressure on policymakers.
Having failed to meet its inflation target for much of the past five years, Fed officials are now deeply concerned that inflation expectations could spiral further out of control.
Market sentiment is shifting noticeably. A month ago, about 40% of investors still bet on significant rate cuts by September 2026. Now, nearly 90% of participants have adopted a wait-and-see stance, expecting rates to remain at current elevated levels through the end of the third quarter of this year.
If Thursday's PCE report confirms the stubbornness of inflation, expectations for "later and fewer" rate cuts will be firmly cemented.
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