Core inflation rate drops to 7-month low of 2.6%

The Fed's preferred method to measure inflation, or the core personal consumption expenditures, has dropped to a 7-month low of 2.6 percent, however, it is still above the 2 percent inflation rate that is widely considered to be the target inflation rate in the US economy.

According to Forbes, the Commerce Department reported that the core inflation rate used by the Federal Reserve, which excludes food and energy, was at 2.6 percent year-over-year as compared to January 2024. There was also an increase of 0.3 percent core inflation from December 2024 to January 2025. This met forecasts that predicted a 2.6 percent inflation rate and is the lowest since June.

Overall inflation was 3 percent year-over-year as compared to 2024. The numbers were in line with what was expected with numbers from the Dow Jones estimate, according to CNBC. Since the inflation rate has still not settled around the 2 percent mark, the Fed is likely to hold steady on the interest rates between the 4.5-4.6 percent range.

Personal income for Americans increased by 0.9 percent, larger than the expected increase of 0.4 percent. Personal savings rates of Americans also went up, rising by 4.6 percent. Spending, on the other hand, decreased, with the amount of cash being spent on goods and services decreasing by 0.2 percent as opposed to the expected gain of 0.1 percent.

The numbers come as President Donald Trump has been talking about negotiating trade deals with different countries, promising to implement a reciprocal tariff on any country implementing the tax on imported US goods.

The Trump administration has also used tariffs as a form of leverage to get concessions out of Mexico and Canada, with a focus on getting the countries to prevent the smuggling of drugs as well as the flow of illegal immigrants into the US. The numbers may soothe the S&P 500, as over the last week there has been major volatility in the market.