Key Inflation Measure Falls In January: 'Should Catch The Fed's Attention,' Economist Says

The Federal Reserve's preferred gauge of inflation marked its first decline in four months Friday. Markets and economists are reacting to the latest PCE data. 

Expert Ideas: January's PCE price index and core PCE price index both rose 0.3% on the month, inline with expectations. The index excludes food and energy.

Bill Adams, chief economist for Comerica Bank, noted that core PCE inflation was the slowest since early 2021. Spending on durable goods fell sharply and spending on nondurables was also weaker. 

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Personal incomes also rose a stronger-than-expected 0.9% in January and, combined with less spending, drove the personal savings rate higher as well. 

"January's strong income growth suggests fundamentals will support a recovery of consumer spending and economic growth in the remainder of 2025," Adams said. 

Joseph Brusuelas, chief economist for RSM, provided some insight into the growth in personal incomes in a social media post. He pointed to "turn of the year factors," including social security cost of living adjustments and dividends, as contributing to the rise. 

By request: a look at the January income data especially on government transfers, dividend and interest payments. Turn of the year factors at play here as they almost always are in January of any given year. pic.twitter.com/0G72JrYlk5

— Joseph Brusuelas (@joebrusuelas) February 28, 2025

Jeffrey Roach, chief economist for LPL Financial, highlighted a rise in the odds of a Fed cut in June as inflation decelerated in January. 

"Softer consumer spending and slower income growth should catch the Fed's attention," Roach said. 

Markets React: The decline in January's PCE price index also provided relief to the market. All three major indexes traded in the green on Friday. 

The SPDR S&P 500 ETF Trust SPY, tracking the S&P 500, was up 0.38% at $587.26 and the Invesco QQQ Trust QQQ, tracking the Nasdaq 100 index, was up 0.39% at $502.24 at the time of publication.  

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