Weekly Economic Snapshot: Inflation Concerns Cast Shadow of Uncertainty

by Jen Nash of VettaFi, 3/3/25

Last week's economic data reflected growing apprehension. Despite GDP figures indicating continued expansion, weakening consumer confidence and persistent inflation concerns have cast a shadow of uncertainty. New tariff threats have further fueled market volatility, contributing to a retreat from recent highs while Treasury yields have fallen to their lowest levels in months.

PCE Price Index

Inflation, as measured by the Federal Reserve's preferred metric, showed signs of cooling last month, though it remains stubbornly above target. The Core Personal Consumption Expenditures (PCE) Price Index, which excludes volatile food and energy costs, rose 2.6% year-over-year in January, aligning with expectations. This represents a decrease from December's 2.9% and is the lowest annual rate since June. On a monthly basis, core prices increased by 0.3%, also meeting forecasts. Meanwhile, the headline PCE Price Index saw a 2.5% annual increase, down from 2.6% in December, marking the first monthly deceleration in four months. Monthly, the headline index also rose by 0.3%, as predicted.

Despite these figures meeting projections, inflation continues to exceed the Fed's 2% target, raising concerns that progress in curbing price increases has plateaued. The central bank has maintained a cautious approach regarding interest rate cuts. They will analyze the upcoming February employment and Consumer Price Index (CPI) reports before their next policy meeting in mid-March.

PCE Price Index

Consumer Confidence

U.S. consumer confidence experienced a sharp decline in February, as the Conference Board Consumer Confidence Index® decreased for the third consecutive month. The index dropped 7.0 points to 98.3 this month from January, falling short of the expected 102.7 reading. This represents the steepest one-month decrease since August 2021 and puts the index at its lowest point in eight months. With that said, the index is still sitting within its 10-point range it has hovered in for the past 3.5 years, albeit at the lower boundary.

The index, based on a monthly survey of consumer attitudes toward current and future economic conditions, showed deterioration in four of the five components in February. The Future Expectations index saw the sharpest drop, with consumers becoming more pessimistic about future business conditions, future income, and future employment opportunities. For the Present Situation Index, current views of business conditions improved slightly while views of current labor market conditions weakened. Furthermore, 12-month inflation expectations surged to 6% in February, as inflation and prices continued to dominate write-in responses, along with new mentions of tariffs and comments on the current Administration and its policies.