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Sticky US Inflation and Tariffs Are Keeping the Fed Sidelined

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Craig Stirling

Sat, Mar 22, 2025, 1:00 PM 9 min read

(Bloomberg) -- US inflation remains at a disquieting level for Federal Reserve officials, just as the Trump administration moves forward with tariffs that risk keeping price pressures elevated.

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The personal consumption expenditures price index excluding food and energy — the Fed’s preferred measure of underlying inflation — probably rose 0.3% in February for a second month, based on a Bloomberg survey. The so-called core gauge is estimated to have accelerated to a 2.7% annual pace.

The government’s report on Friday is also expected to show consumer spending firmed after a tepid start to 2025, while income growth moderated after rising a month earlier by the most in a year. Consumer outlays, unadjusted for price changes, are forecast to have climbed 0.5% after the biggest weather-driven retreat in nearly four years. Personal income is seen rising 0.4%.

What Bloomberg Economics Says:

“Monthly core PCE inflation likely rose to 0.35% in February (vs. 0.28% prior), double the pace consistent with the Fed’s 2% target. Price increases across goods, health care, and financial services more than offset declines in other sectors. Given firm inflation and solid spending, the Fed’s decision to hold rates at the March FOMC meeting and revise up inflation forecasts will likely appear justified.”

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

The latest inflation and spending numbers provide a snapshot of price pressures and economic activity leading up to President Donald Trump’s planned April 2 announcement on reciprocal tariffs — which Trump has dubbed “Liberation Day in America.” General uncertainty about the impact of the duties help explain why Fed officials kept interest rates unchanged last week.

After the meeting, Fed Chair Jerome Powell said policymakers have scope to stand pat on rates to get a better handle on how the administration’s policies will impact the economy and inflation. Fed Governor Adriana Kugler and St. Louis Fed President Alberto Musalem are among the US central bankers speaking in the coming week, while Atlanta Fed President Raphael Bostic will appear on Bloomberg TV on Monday.

Other economic data on the agenda include February durable goods orders, which may offer a sense of whether companies are becoming more cautious about their capital spending plans. Economists will also use a report on February merchandise trade to help shape estimates of first-quarter gross domestic product. The imports data, however, will probable be skewed once again by a surge in inbound gold that won’t be included in the government’s GDP estimate.

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