Federal Reserve Governor Michelle Bowman announced on Friday that inflation is expected to decelerate through 2025, emphasizing the need for patience before altering monetary policy. Speaking before business leaders in Portsmouth, New Hampshire, Bowman underscored the importance of clear signs of inflation reduction before the central bank considers further adjustments to interest rates.
Personal income rose by 0.4% in line with forecasts, while consumer spending increased by 0.7%, which exceeded estimates by a tenth of a percentage point. These figures indicate a steady economic expansion, with the core Personal Consumption Expenditures (PCE) index registering a 2.8% increase, meeting expectations and mirroring the previous month’s results.
The Federal Reserve targets an annual inflation rate of 2%, a benchmark not achieved since February 2021. The core PCE reading is considered a more reliable indicator of long-term inflation trends by the Fed, compared to headline figures. On a monthly basis, headline PCE rose by 0.3%, and core PCE increased by 0.2%, both aligning with forecasts. Meanwhile, the personal consumption expenditures price index increased by 2.6% on a year-over-year basis, slightly above the previous month's reading.
In her address, Governor Bowman reiterated the Fed's cautious approach:
"There is still more work to be done to bring inflation closer to our 2 percent goal. I would like to see progress in lowering inflation resume before we make further adjustments to the target range." – Michelle Bowman
Inflation concluded 2024 on a robust note, with price gauges remaining above the central bank's target. This performance prompted the Federal Reserve to unanimously vote to maintain its key interest rate within a range of 4.25% to 4.5%. This decision marked a pause following three consecutive rate cuts, which collectively reduced the rate by a full percentage point.
The Dow Jones estimate for the year-over-year increase in the personal consumption expenditures price index was met, reflecting stability in economic conditions despite persistent inflationary pressures. As the central bank continues to monitor these trends, its commitment to achieving its inflation target remains unwavering.