With prices rising and trade tariffs looming, the Federal Reserve’s plan to ease monetary policy is facing tough hurdles. October’s Personal Consumption Expenditures (PCE) price index jumped to 2.3% annually, up from September’s 2.1%, signaling persistent inflation pressures that could derail Wall Street’s optimistic interest rate reduction timeline. The surge comes as President-elect Trump’s proposed 25% tariff on Mexican and Canadian imports threatens to push prices even higher.

• Core PCE inflation, which excludes volatile food and energy prices, accelerated to 2.8% annually in October, marking one of the most stubborn readings well above the Fed’s 2% target.
• Almost 90% of economists still expect a December rate cut to 4.25%-4.50%, though market confidence in this move has dropped below 60%.

Looking ahead: The Fed is likely to start loosening monetary policy, but the path is becoming more complicated. Economists say Trump’s tariffs could push PCE inflation up by as much as 1.1%, potentially forcing the central bank to keep rates higher for longer than expected. Fed Chair Powell’s recent comments about not rushing to cut rates, combined with robust consumer spending and ongoing inflation, paint a picture of a central bank caught between competing pressures — suggesting the Fed may need to temper expectations for aggressive rate cuts in 2025.