Forecasts for February PCE Report Show Inflation Above Fed’s Target

Key Takeaways

• February’s PCE report is expected to show elevated price growth, a departure from the softer-than-expected increase in January.
• Economists forecast goods inflation to firm, keeping annual inflation above the Fed’s 2% target.
• Given persistent inflation and early signs of an improving job market, analysts expect the Fed to keep interest rates in their current range.

Forecasts for the February Personal Consumption Expenditures Price Index report predict that inflation remained elevated ahead of the Iran war. Overall, economists believe consumer prices rose 0.32% month over month and 2.6% on a yearly basis, according to FactSet’s consensus estimates. That would be a larger increase than in January, when the PCE index rose a less-than-expected 0.28% month over month.

Core PCE, which excludes volatile food and energy prices, is forecast to rise 0.37% in February from its month-ago levels and 3.00% yearly, both roughly matching their January levels.

Within the Consumer Price Index (a separate inflation measure) report, prices moderated in January and February 2026—an early trend that economists warned could be upended by the Iran war and spiking oil prices. According to February’s CPI report, headline inflation rose 0.3% month over month and 2.4% year over year, both in line with its January readings.

Economists expect February’s PCE data—the Federal Reserve’s preferred measure for inflation—to show prices cementing above the central bank’s 2% target for a stable economy. “The impact on PCE will be slightly lower, due to its lower weighting to energy,” says Morningstar senior US economist Preston Caldwell about rising energy prices. “Still, combined with the fact that core PCE has been running higher than core CPI, the overall PCE index may accelerate to 3.2% year over year in March. That would be its highest since September 2023.”

Analysts at Goldman Sachs and Bank of America expect the elevated monthly and annual PCE readings to come from rising goods prices. Economists at both banks expect Thursday’s PCE report to show inflation above the initial levels shown in February’s CPI data.

Economists are near-unanimous in predicting that February’s PCE data will help sway the Fed to keep interest rates unchanged. “Rate cuts may be less likely but are still more likely than hikes,” Deutsche Bank economists said in a recent analyst note.

February PCE Report Highlights

• PCE report release date and time: April 9 at 8:30 a.m. EDT
• The PCE Price Index is forecast to have risen by 0.32% in February, up from 0.28% in January.
• Core PCE is expected to have risen 0.37% in February, up from 0.36% in January.
• Year over year, the PCE Price Index is forecast to have risen 2.6% in February, down from 2.8% in January.
• Core PCE year over year is expected to have risen 3.0% in February, down from 3.1% in January.

Rising Goods Prices to Accelerate Core Inflation

Economists expect rising goods prices to put upward pressure on February’s core PCE data.

Bank of America analysts expect February’s core PCE reading to come in above consensus to rise 0.43% from month-ago levels, owing to rising goods prices. The team expects core goods prices to rise 0.8%-0.9% in February, which “suggests more tariff-driven inflation.”

Goldman Sachs economists expect that the core PCE rose 0.34% month over month in February—also above consensus expectations—thanks to strong price growth in software goods, which are given more weight in core PCE than core CPI.

At Deutsche Bank, economists expect core PCE to come in above consensus for February, due to goods inflation and services price growth. They predict “super core” services inflation—which excludes food, energy, and housing—to remain hot and keep overall inflation elevated. “Some of the recent deterioration in the short-term core PCE inflation trends is due to outsized strength in some volatile goods categories,” the analysts wrote in a recent note. “However, we expect ‘super core’ services inflation to remain elevated year over year.”

Fed Likely to Keep Rate Moves on Hold

Despite the above-target inflation anticipated in the report, markets are near-unanimous in expecting the Fed to hold rates steady at its April meeting. As of midday on April 7, over 97.4% of bond traders foresee the federal-funds effective rate target staying at its current range of 3.50%-3.75% on April 29, according to the CME FedWatch Tool. That would be the fifth consecutive meeting with unchanged policy.

Deutsche Bank economists also expect the Fed to keep interest rates in their current range following March’s jobs data, which showed a rebound in hiring. But they also warned that long-term inflation from rising gas prices could muddy the central bank’s monetary outlook. “While monetary policymakers would typically look through upticks in inflation driven by temporary supply shocks, that assumes that inflation expectations are well anchored,” wrote Deutsche Bank analysts in a recent note. “Given that the Fed has been missing on its inflation goal for the better part of the last five years, officials are acutely concerned about further increases in inflation expectations.”

Futures market participants are clear on their expectations for the Fed to keep rates steady through April, and those expectations are solidifying further out. A month ago, 40% of participants expected the Fed to lower its target to a range of 3.25%-3.50% by its September 2026 meeting, and an additional 20% expected the target to fall to 3.00%-3.25% by then. But now, just under 90% of participants expect the rate to stay at 3.50%-3.75% through September.