Wall Street got some soothing data on Friday for the Federal Reserve's primary inflation rate and wage-growth measure. Although President Trump has signaled that tariffs may be coming on Saturday, Feb. 1, the S&P 500 has climbed close to a record, with Apple leading the way after topping earnings estimates.
Good news on inflation and wages will make it easier for the Fed to look through any one-time increase in prices due to tariffs.
PCE Inflation
As expected, the personal consumption expenditures, or PCE, price index rose 0.3%, lifting the 12-month inflation rate to 2.6% from 2.4% in November.
Fed policy is focused more on core inflation, which strips out volatile food and energy prices. The core PCE price index matched forecasts, rising 0.2% and leaving the 12-month core inflation rate at 2.8%.
The data looked even better when not rounded to tenths of a percentage point. The core PCE price index rose 0.156% on the month, as the 12-month core inflation rate dipped to 2.79% from 2.82%.
The PCE inflation data is part of the personal income and outlays report issued by the Bureau of Economic Analysis. Personal income rose 0.4% in December, as expected. Personal consumption grew 0.7%, above 0.5% estimates.
Employment Cost Index
The ECI matched expectations, rising 0.9% in Q4. That lowered 12-month compensation gains to 3.8%. In Q3, the Fed's primary measure of compensation rose 0.8%, cooling the 12-month increase to 3.9%.
Fed Rate-Cut Outlook
Ahead of Friday's data, markets are pricing in 18% odds of a rate cut at the March 19 Fed meeting and 44% odds of a cut at the May 7 meeting. Odds favor a cut at the June 18 meeting, 69.5% to 30.5%, according to CME Group's FedWatch tool.
S&P 500
The S&P 500 rose 0.6% in Friday morning stock market action after the PCE price index data. Apple stock rose more than 4%, signaling an early entry.
The S&P 500, which rose 0.5% on Thursday, has regained its footing after diving early Monday on Chinese startup DeepSeek's surprisingly competitive and low-cost AI model.
On Thursday, the S&P 500 finished within 0.8% of its Jan. 23 all-time closing high.
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