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Fed-Favored Inflation Gauge Is Set to Ease to Seven-Month Low

(Bloomberg) -- The Federal Reserve’s preferred inflation metric is expected to cool to the slowest pace since June, but glacial progress on taming price pressures overall will keep policymakers cautious about lowering interest rates further.

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The core personal consumption expenditures price index — which excludes often-volatile food and energy costs — probably rose 2.6% in the year through January in Commerce Department data due on Friday. Overall PCE inflation likely eased on an annual basis as well, according to the median estimate in a Bloomberg survey of economists.

The decline will probably come from categories that were relatively tame in separate wholesale inflation data that feeds through to the PCE, according to Bloomberg Economics. But components that registered strong increases in the consumer price index will keep the PCE running above the Fed’s 2% target.

That’s a big reason why officials prefer to keep rates on hold for the time being. Michael Barr is due to speak for likely his last time as the central bank’s vice chair for supervision as he prepares to step down at the end of the month, while Richmond Fed President Tom Barkin and Cleveland’s Beth Hammack are among others scheduled to deliver comments.

At the same time as the PCE report, the Commerce Department will release the latest goods-trade balance, which widened to a record in December and will be a key focus for President Donald Trump in his second term. Other data due for release in the coming week include new-home sales, consumer confidence and the government’s second estimate of fourth-quarter growth.

Meanwhile, investors will continue to watch Trump’s efforts on tariffs and Elon Musk’s push to slash the size of the federal government.

What Bloomberg Economics Says:

“We expect personal-consumption data to show personal spending contracted in January, while core PCE inflation likely slowed to 2.6% year over year. The Trump Trade — a bet on higher inflation – may look increasingly unattractive.”

—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For full analysis, click here

In Canada, gross domestic product data for the fourth quarter is likely to show an economy picking up steam following aggressive rate cuts — though that momentum may stall as the looming trade war weighs on business investment.

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