Inflation rose 2.5% in January on the PCE index, the Federal Reserve’s preferred gauge, matching economists’ expectations.
Although inflation has retreated substantially from its mid-2022 peak near 9%, it remains above the Fed’s 2% target. The Consumer Price Index, another widely used measure, recorded a 3% year-over-year increase in January.
Economists say these persistent inflation readings help explain the Federal Reserve’s choice in January to postpone additional interest-rate cuts. With prices still elevated, the central bank is cautious about loosening policy too quickly.
Consumer sentiment is weakening amid these economic pressures. A CBS News poll finds that a majority of Americans believe their incomes are not keeping pace with rising prices, limiting their ability to save and reducing discretionary spending.
The University of Michigan’s consumer sentiment index for Democratic-leaning respondents has fallen to its lowest level since the 2008 financial crisis. Comerica Bank’s chief economist points to a mix of concerns—tariffs, potential government spending cuts, and worries about deportation—as factors that may be dampening discretionary spending and weighing on household confidence.
Taken together, the data suggest inflation is cooling from extreme highs but still poses challenges for policymakers and households. The Fed appears to be balancing the risk of rekindling inflation against the need to support growth, while consumers adjust budgets in response to ongoing price pressures and policy uncertainty.