The Federal Reserve's preferred inflation gauge cooled in January, offering some relief after a string of reports showed price pressures heating up again and consumers pulling back on spending.

The U.S. core PCE price index recorded an annual rate of 2.6% in January, in line with expectations, hitting a new low since June 2024, and the previous value was revised from 2.8% to 2.9%; the U.S. core PCE price index recorded a monthly rate of 0.3% in January, also in line with expectations, hitting a new high since October 2024, and the previous value was 0.2%. The overall PCE annual and monthly rates are also within market expectations.

In addition, consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.2% in January, the largest drop since February 2021, ending the growth trend since March 2023. Market expectations are for a 0.1% increase, with the previous value revised from 0.70% to 0.8%. This is partly due to the extreme winter weather that hit the U.S. after a strong holiday shopping season.

After the PCE data was released, spot gold and the US dollar index did not fluctuate much in the short term. The decline of US Treasury bonds narrowed, and the 10-year Treasury yield fell 1.6 basis points to 4.271%.

Friday’s PCE report provided some relief on the inflation front after other price reports showed progress was not only stalling but reversing. Fed officials have said they need to see a meaningful reprieve in inflation before they start cutting rates again, especially as they factor in uncertainty about how Trump’s policies will affect prices.

At the same time, the sharp drop in spending could raise concerns about the resilience of the U.S. economy. Weak consumer spending may reflect the fading pull of forward-looking consumption and the drag from unseasonably cold temperatures and snowstorms in much of the country. The Los Angeles wildfires may also have hurt consumption. Winter storms disrupted residential construction last month and also contributed to the depressing of job growth. In addition to weather factors, Trump administration policies have also hampered economic activity, including tariffs and deep spending cuts.

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The article is forwarded from: Jinshi Data