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In February, consumer spending in the United States increased by 0.4%, following a revised 0.3% decline in January, according to data from the Commerce Department's Bureau of Economic Analysis. This rebound in spending, which constitutes more than two-thirds of economic activity, was largely driven by higher prices. However, inflation continues to exceed the Federal Reserve's target, posing ongoing economic challenges.
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation, rose by 0.3% in February, matching January's increase. On an annual basis, prices climbed by 2.5%, while core inflation, excluding food and energy, rose by 0.4% in February and 2.8% over the past 12 months. Despite these inflationary pressures, the Federal Reserve has kept its benchmark interest rate steady in the 4.25%-4.50% range, although financial markets are anticipating a potential rate cut in June.
The rise in consumer spending comes amid concerns about slow economic growth and escalating trade tensions. President Donald Trump has announced a 25% tariff on imported cars and light trucks, set to take effect next week. Economists warn that these tariffs could harm economic growth, as trade partners retaliate with their own duties. Businesses and consumers have been rushing to secure imports and make purchases before the tariffs take effect, contributing to the recent spending surge.
As inflationary pressures continue, the Federal Reserve is closely monitoring the situation to maintain its 2% inflation target. The central bank's decision to leave interest rates unchanged reflects its cautious approach in the face of uncertain economic conditions. Economists remain concerned about the risk of a slowdown, with first-quarter GDP estimates hovering around a 1.0% annualized growth rate.