What To Expect From Friday's Report on Inflation

Core Insights - The Fed's inflation benchmark is expected to worsen, with consumer prices measured by Personal Consumption Expenditures (PCE) projected to rise 2.8% over the 12 months through December, and core PCE forecasted to increase to 3.0% from 2.8% in November [1][2][7] - The anticipated rise in core PCE inflation is significant as it is the measure the Federal Reserve uses to assess its 2% annual inflation target [2][4] - Financial markets are currently predicting a quarter-point cut in the Fed's key fed funds rate by June, but clarity on inflation trends is needed before any rate cuts can be made [5][6] Economic Implications - Persistently high inflation is negatively impacting household budgets and maintaining elevated interest rates [3] - Some economists, such as those at Goldman Sachs, predict that the annual PCE measure will continue to rise as companies pass on tariff costs to consumers, with core PCE potentially reaching 3.05%, the highest since March 2024 [4] - The Federal Reserve will closely monitor upcoming inflation data, particularly PCE, to determine whether to lower borrowing costs to stimulate the job market or maintain higher rates to control inflation [4][6]