Fed's Preferred Inflation Gauge Hits 3% in December, Complicating Rate Cut Outlook

The Core Personal Consumption Expenditures (PCE) price index, the Federal Reserve's primary inflation metric, accelerated to a 3% annual increase in December 2025. This reading marks the highest level since February 2025, signaling that inflationary pressures remain stubbornly above the central bank's long-term 2% target. The unexpected rise has dampened market hopes for imminent interest rate cuts, as the "last mile" of disinflation proves more challenging than anticipated. Analysts suggest that this data reinforces a "higher-for-longer" monetary policy stance, putting upward pressure on Treasury yields and the US Dollar. Consequently, equity markets faced headwinds as investors recalibrated their expectations for the Fed's policy trajectory. The persistent strength in consumer prices highlights the ongoing struggle to bring inflation fully under control despite previous tightening efforts.