By Nicole Goodkind

The Federal Reserve's preferred inflation gauge is expected to show prices rose faster in December, reinforcing policymakers' increasing caution on cutting interest rates.

The consensus call among economists surveyed by FactSet is that core personal consumption expenditures, which don't include volatile food or energy prices, rose 0.37% in December from the prior month and 3.0% from a year earlier, up from 2.8% in November. Headline PCE is forecast to increase 0.3% on the month and 2.7% year over year.

A monthly gain of 0.37%, translating to an annualized pace well above the Fed's 2% target, would suggest that progress on reducing inflation has slowed after steadying in recent months, following a series of increases that began last April. Core inflation would be back at 3%, making it clear it hasn't achieved the "clear and convincing" decline many policymakers have said they need to see before cutting rates again.

Minutes from the Fed's January meeting, released Wednesday, showed officials setting a higher bar for additional easing in 2026. Policymakers emphasized the need for more evidence that inflation is moving sustainably toward the bank's target and acknowledged that monetary policy may need to remain restrictive for some time if price pressures fail to cool.

Still, markets continue to expect rate cuts later this year. More than half of investors see at least a quarter-point cut by June, according to the CME FedWatch tool.

A firm PCE reading on Friday would strengthen the argument that the Fed needs to wait. With unemployment relatively stable and economic activity holding up, inflation near 3% would give officials little reason to rush.

The report is also expected to show a moderation in consumer demand. Economists project modest gains in income and spending in December, suggesting that while consumers remain active, they are no longer increasing their purchases the way they did earlier in the year. The saving rate is expected to remain low, meaning that spending has been supported, in part, by a shrinking financial cushion.

A combination of persistent inflation and only a gradual slowing of consumption might signal to the Fed that it makes sense to keep rates steady. It reduces the urgency for cuts while offering little reassurance that inflation is headed back to 2%.

For now, if annual core PCE holds near 3%, the Fed's more hawkish tilt is likely to remain intact.

Write to Nicole Goodkind at nicole.goodkind@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 19, 2026 16:10 ET (21:10 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.