U.S. Core PCE Rises 2.8% Year-Over-Year, Exceeding Forecasts

The U.S. core PCE price index, a key inflation gauge for the Federal Reserve, rose 2.8% year-over-year in June 2025, exceeding the expected 2.7% and marking a slight acceleration from the prior month’s revised 2.8% [1]. The data, released on July 31, indicated persistent inflationary pressures, with core PCE continuing to remain above the Fed’s 2% target. The reading aligned with the 2024 average of 2.8%, suggesting limited progress in curbing inflation despite prior interest rate hikes [2].

The report was released alongside the Fed’s decision to maintain the benchmark rate between 4.25–4.50% for a fifth consecutive meeting. While two governors voted in favor of a rate cut, the central bank reaffirmed its data-dependent approach, emphasizing that future rate decisions would hinge on incoming economic signals. Analysts had previously forecast a decline in inflation, with some predicting a 2.4–2.5% annual rate for June [3], but the stronger-than-expected core PCE outcome suggested inflation remained resilient.

The core PCE price index, which excludes volatile food and energy costs, has been a focal point for markets as it influences monetary policy. With the June result reinforcing the Fed’s cautious stance, speculation has grown that the central bank may delay rate cuts beyond its expected September meeting, particularly if July data also shows firmness. Investors had previously priced in a 25-basis-point cut in September and up to 100 bps of easing over the next year [4], but the current trajectory implies more limited near-term action.

Meanwhile, the economic landscape remains mixed. Low unemployment coexists with signs of moderation in overall economic activity, complicating the Fed’s outlook. Market participants are watching for clarity on when the Fed might pivot, with some analysts suggesting a rate cut could still occur if inflation shows a clear downward trend. However, with trade tensions rising and inflation stubbornly elevated, the central bank appears inclined to adopt a wait-and-see approach [5].

President Donald Trump has continued to advocate for more aggressive rate cuts, including a potential reduction to 1%, arguing it would stimulate growth and reduce borrowing costs. However, such a move has drawn criticism from economists who warn it could trigger renewed inflationary pressures and financial instability. The Fed has not indicated any willingness to pursue such a course, reiterating that policy will remain data-driven [6].

With the core PCE report reinforcing inflationary concerns, the next reading will be closely watched for further insight into the trajectory of price pressures. In the interim, the central bank’s cautious approach and mixed economic signals are expected to continue fueling market volatility as investors assess the timing and magnitude of future rate changes.

Sources:

[1] United States Core PCE Price Index YoY (https://www.investing.com/economic-calendar/core-pce-price-index-905)

[2] United States Fed Funds Interest Rate (https://tradingeconomics.com/united-states/interest-rate)

[3] CPI rose in June to 2.7% annual rate, highest since February (https://www.aol.com/cpi-rose-june-2-7-124730243.html)

[4] Markets Await Core PCE June 2025: EUR/USD, Gold, S&P (https://medium.com/@uptexforex/markets-await-core-pce-june-2025-eur-usd-gold-s-p-500-bitcoin-forecast-6192f3c5e4ad)

[5] The US Fed Tees Up a September Rate Cut, but Will it ... (https://global.morningstar.com/en-gb/economy/us-fed-tees-up-september-rate-cut-will-it-happen)