'Inflation Will Accelerate In Coming Months' If April 2 Tariffs Take Effect, Economist Warns

The Federal Reserve's preferred measure of inflation came in hotter than expected on Friday. Experts are weighing in on how the latest data could affect the road ahead. 

The Details: The Personal Consumption Expenditures (PCE) price index rose 2.5% year-over-year, matching January's reading and economist forecasts of 2.5%. On a monthly basis, headline PCE rose 0.3%, in line with estimates.

However, core PCE climbed 2.8% from a year ago, up slightly from January’s 2.7% and above economists' expectations of 2.7%. 

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Bill Adams, chief economist for Comerica Bank, said that February's spending data confirms a slowdown in consumer activity in the first quarter of 2025 and predicted that real GDP will be slower in the quarter as well. 

The Federal Reserve is in a tight spot with interest rates as the economy appears to be slowing and inflation is likely to pick back up in 2025. 

"If tariffs rise on April 2 as pledged, inflation will accelerate in coming months," Adams said. 

Joseph Brusuelas, chief economist for RSM, said that "inflation improvement has stalled out" and warned about tariffs and trade policies affecting the economic data ahead. 

Jeffrey Roach, chief economist for LPL Financial, highlighted February's core PCE index as the hottest print in more than a year and said the savings rate rose to 4.6%, as consumers grow more cautious about the future.

Roach sees income growth as supporting the economy for now, but sees trouble ahead if income growth slows. 

"Stable real disposable income growth will likely provide a buffer for the economy nervous about a trade war and sticky inflation. But if income growth falters, the economy will be at greater risk," he said. 

Markets React: All three major indexes were down sharply in midday trading Friday as markets digest the PCE data and worse-than-expected consumer sentiment survey released earlier in the day. President Donald Trump’s tariffs continue to roil markets with more expected next week.

The SPDR S&P 500 ETF Trust (NYSE:SPY), tracking the S&P 500, was down 1.9% and the Invesco QQQ Trust (NASDAQ:QQQ), tracking the Nasdaq 100 index, was down 2.6% at the time of publication Friday.  

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