The Personal Consumption Expenditures (PCE) report is out and it brings a deep dive into the state of the U.S. economy and inflation. Inflation came in 2.5% higher year-over-year in January, matching expert estimates. However, it’s still above the Federal Reserve’s desired 2% increase.
While 2.5% isn’t as low as investors may want, it is an improvement over the 2.6% reported in December. In fact, it’s the lowest year-over-year inflation has been since November 2024. When excluding food and energy, the PCE price index increased 2.6% annually in January.
How Will the PCE Report Affect Interest Rates?
The PCE report is incredibly important for measuring the Fed’s stance on the economy. That’s because it’s the organization’s favored metric for measuring inflation.
The fact that inflation remains above 2% annually strengthens the Fed’s decision to put interest rate cuts on hold. There’s a real concern that additional interest rate drops could cause inflation to increase, further stressing the U.S. economy.
However, experts believe the central bank will still likely cut interest rates in 2025. While there may not be as many cuts as hoped, current polls point toward two potential interest rate cuts this year. This would be welcome news for the stock market as investors have long waited for interest rates to drop back to normal levels following post-pandemic highs.
Stocks to Buy That Resist Inflation
With news of inflation remaining steady, investors will want to consider stakes in companies resistant to rising prices. For example, department stores like Walmart (WMT) continue to perform well during inflation as they sell essential products. Real estate investment trusts (REITs) also resist inflation, making American Tower (AMT) another solid choice. Finally, investors might consider stakes in exchange-traded funds (ETFs) that track the S&P 500 (SPX) index as it has regularly increased in value even during inflation.
