PCE Report Hits Today—But Tariffs and Fed Caution Steal the Spotlight

Traders Watching PCE Today—But Is It Already Priced In?

Today’s PCE inflation report lands at 12:30 GMT, but some traders are already looking past it. With new tariffs set to push prices higher and business activity slowing due to policy uncertainty, February’s data may offer limited insight into what’s really driving markets right now.

Core Inflation Still a Problem for the Fed

Analysts expect the headline PCE rate to stay at 2.5% year-over-year, while core inflation is forecast to edge up to 2.7% from 2.6%. There’s also talk of a 0.4% monthly gain in core—strong enough to keep the Fed cautious.

That’s in contrast to the softer CPI numbers we saw recently, adding confusion about where inflation’s really headed. With spending expected to rise 0.7% and incomes up 0.4%, the Fed may not see enough weakness to justify cutting rates anytime soon.

Tariffs Could Keep Inflation Higher for Longer

The Trump administration’s tariff plans are adding new layers to the inflation picture. Boston Fed’s Susan Collins says a short-term spike is likely. But St. Louis Fed’s Alberto Musalem isn’t so sure it’ll fade quickly. His team estimates the tariffs could lift inflation by over a full percentage point.

Since today’s data is from February—before most of these tariffs were announced—it may understate what’s coming next. That’s a key risk for anyone betting on rate cuts.

Business Activity Slows Under Policy Fog

Fed officials say businesses are stalling, holding back on investment and hiring as they wait for policy clarity. Richmond Fed’s Thomas Barkin described the current environment as like driving in fog with “zero visibility.”

This slowdown adds to downside risks for growth, especially if consumer spending also weakens in the coming months.

Consumer Confidence Drops, Inflation Fears Climb

Consumer sentiment likely dropped sharply in March, and inflation expectations likely rose to their highest level in over a year. That could lead households to cut back on spending—which would weigh on growth and make the Fed’s job even harder.

What to Watch When the Data Hits

• Hot PCE (0.4% or more): Could push rate cut bets further out, lifting short-term yields, strengthening the dollar, and pressuring stocks.
• Cooler PCE (0.3% or less): May give markets a reason to price in cuts again, helping stocks and weighing on the dollar.
• Keep an eye on 2-year vs. 10-year yields, and how gold reacts to inflation expectations.

Market View: Cautious for Now, Inflation Still in Focus

Even if today’s number doesn’t shock, traders will stay focused on the bigger picture: inflation risks tied to tariffs, weak sentiment, and Fed hesitation. Expect a neutral-to-bearish tone in rate-sensitive trades—until inflation expectations come down or policy signals turn clearer.

More Information in our Economic Calendar.