The Federal Reserve’s preferred inflation metric remained high in February, and President Donald Trump’s tariffs are adding uncertainty to policymakers. The core personal consumption expenditures (PCE) index showed annual inflation at 2.8%, far above the central bankers’ target of 2%.
Economists had expected a lower reading of 2.7%. The PCE index increased 0.3% from January to February, with the core measure rising by 0.4%, exceeding forecasts. This has led to a negative response on Wall Street, with the Dow Jones Industrial Average slipping 1.8%, and the S&P 500 and Nasdaq dropping 2% and 2.7%, respectively.
Tech-heavy companies such as Apple, Amazon, Google, and Microsoft were hit hard, with shares falling more than 2.6%. The decline in the stock market is also reflected in a 3.4 billion-point drop from its December record, equating to an 8% decline.
The stubborn inflation reading suggests that interest rate cuts may be further down the road. Morgan Stanley Wealth Management’s Ellen Zentner notes that this means investors will have to wait even longer for the Fed to act. The situation is complicated by President Trump’s tariffs, which are expected to increase consumer prices, though the extent remains uncertain.
The Federal Reserve has yet to declare victory on inflation and has kept the federal funds rate steady at 4.25% to 4.5%. Americans saved only 4.6% of their disposable income in February, below the average savings rate from the turn of the millennium through January.
Source: https://www.forbes.com/sites/dereksaul/2025/03/28/dow-stumbles-more-than-700-points-after-high-inflation-report-as-tariffs-loom