Dive Brief:

• The inflation measure preferred by the Federal Reserve is on track to fall below the 3% forecast by policymakers for all of 2025, according to data released Thursday by the Bureau of Economic Analysis.
• The personal consumption expenditures price index minus volatile food and energy prices rose 2.8% in November, the BEA said, or below the 3% projection by Fed officials last month for 2025. The Federal Open Market Committee, the central bank’s policymaking body, seeks to limit long-term inflation at 2%.
• “We expect inflation to continue to undershoot the committee’s expectations this year, given the relatively low level of tariff revenues, negligible momentum in new rents and signs that wage growth is set to slow further,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note.

Dive Insight:

Policymakers will probably keep the federal funds rate at a range between 3.5% and 3.75% after a two-day meeting ending on Jan. 28, according to the CME Group’s FedWatch tool, which measures bets by traders in interest rate futures. Most traders expect one to two quarter-point reductions in the main rate this year.

The newest gauge of PCE aligns with Bureau of Labor Statistics data released last week showing that the core consumer price index rose 0.2% in December and 2.6% for the full year. The annual rate matches a four-year low.

Policymakers, while flagging fragility in the job market, cut the main interest rate by a quarter point three times from September through December last year.

The trims in borrowing costs are far less than the cuts that President Donald Trump has sought for many months. He has repeatedly called on Fed Chair Jerome Powell to reduce the main rate to as low as 1%.

“Inflation has been defeated,” Trump said in a speech to the World Economic Forum on Wednesday.

“Some of these stupid people like Powell, they raise interest rates,” he said “What they do is they stop you from being successful,” Trump said, adding “they're so petrified of inflation.”

Prices in recent months grew at a moderate rate across a big majority of the Fed’s 12 districts, according to the central bank’s Beige Book report on the economy released before a scheduled gathering of policymakers.

Only two districts reported slight price growth, the Fed said, noting that “cost pressures due to tariffs were a consistent theme across all districts.”

“Several contacts that initially absorbed tariff-related costs were beginning to pass them on to customers as pre-tariff inventories became depleted or as pressures to preserve margins grew more acute,” according to the Beige Book.

“Looking ahead, firms expect some moderation in price growth, but anticipated prices to remain elevated as they work through increased costs,” according to the report. The price jump triggered by import taxes will likely fade by the start of the third quarter, Powell said last month.