Inflation Holds Steady at 2.5% as Tariff Tensions Stir Economic Uncertainty

Core PCE ticks up; consumer spending rebounds but risks of stagflation grow amid trade policy shifts.
By yourNEWS Media Newsroom

The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, held steady at 2.5% in the 12 months through February, matching the year-over-year rate reported in January, the Commerce Department’s Bureau of Economic Analysis announced Friday. On a monthly basis, the PCE index rose 0.3% in February, in line with economists’ forecasts.

Core inflation, which excludes the volatile food and energy components, increased 0.4% in February, accelerating from a 0.3% rise in January. Over the past year, core prices climbed 2.8%, edging up from 2.7% the previous month.

The inflation data comes as the Federal Reserve maintains its benchmark interest rate in the 4.25%–4.50% range. Although the central bank has kept rates steady, financial markets anticipate rate cuts beginning in June as the Fed grapples with signs of slowing economic growth paired with stubborn inflation.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose by 0.4% in February following a revised 0.3% decline in January. The rebound likely reflects both renewed demand and higher prices, underscoring growing concerns over inflationary pressure in an environment of tepid economic growth.

President Donald Trump’s escalating tariff actions are contributing to these concerns. On Wednesday, the administration announced a new 25% tariff on imported cars and light trucks, set to take effect next week. Trump has framed tariffs as a strategy to generate revenue to support his tax cut initiatives and revitalize American manufacturing, but many economists warn the approach is inflationary and could suppress long-term growth.

“The size and manner in which the tariffs are being handled were detrimental to economic growth,” analysts said, pointing to rising input costs, supply chain disruptions, and retaliatory duties from trade partners.

Recent data indicates that businesses have been stockpiling imports in anticipation of higher prices, which has widened the trade deficit and front-loaded consumer demand, particularly during the fourth quarter. Consumer spending cooled in early 2025 as the effects of this preemptive activity faded and severe winter weather dampened foot traffic and retail activity.

Before the latest data, gross domestic product projections for the first quarter hovered near a 1.0% annualized growth rate, with some economists warning of an increased risk of contraction. The U.S. economy expanded at a 2.4% pace in the final quarter of 2024.

Federal Reserve Chair Jerome Powell acknowledged last week that “inflation had started to rise partly in response to tariffs,” and noted that “there may be a delay in further progress over the course of this year.” He did not indicate whether the Fed would alter its timeline for rate adjustments.

With Trump expected to announce additional reciprocal tariffs next week, economists continue to express concern that a prolonged trade conflict could dampen business confidence and raise the risk of recession.

Consumer inflation expectations have surged in recent weeks, reflecting growing unease about price stability and broader economic uncertainty in the face of an aggressive trade policy environment.