Month: March 2026

The year-over-year core PCE inflation rate ticked up from 3% in December to 3.06% in January. The outlook is worse in the sense that the annualized month-over-month core PCE inflation rate has been running well over 4%. As discussed in previous posts, the year-over-year rate is roughly the average of the previous 12 month-over-month inflation rates. As a result, the change in the year-over-year rate between December 2025 and January 2026 is determined by the difference in the month-over-month observation being added into this 12 month average, 4.45% for January 2026, and the observation being dropped, 3.84 for January 2025. Our trend measure of inflation is the happy medium of the volatile month-over-month rate and the slow-to-adjust year-over-year rate. Trend core PCE inflation rose from 3.14% in December to 3.58% in January.

Year-over-year overall PCE inflation fell slightly from 2.91% in December to 2.83% in January as the month-over-month rate fell from 4.39% in December to 3.35% in January. Our trend measure moved up from 3.26% to 3.29%.

Policy Outlook

The bottom line is that core PCE inflation is running well above the Fed’s 2% target. Keep in mind that the latest PCE release is for January 2026. Earlier this week, CPI data for February was released. It is not until April 9 that the corresponding PCE data will be available — the delay once again due to the month-long federal government shutdown in the Fall. Consequently, the effects of the runup in oil prices in anticipation of the war with Iran have yet to show up in the PCE price data. While core inflation measures strip out the immediate effect of changes in energy prices, the effects of the war will eventually filter into other prices, partly through increased transportation costs that will be priced in to final goods prices, and eventually into food prices since the Middle East is an important supplier of fertilizer ingredients.

by paul gomme and peter rupert

The BLS announced that the CPI in February rose 3.25% on an annualized basis. Year over CPI inflation was 2.43% up from 2.39% in the previous month. Our preferred trend measure was little changed at 2.68% compared to the previous month. Anticipation of the war appears to have pushed up oil prices in February which may account for the 11.1% (250% annualized) monthly increase in fuel oil.

The annualized core measure (ex food and energy) fell from 3.59% to 2.62%, year over year changed little coming in at 2.47% compared to 2.51% in the previous month. Our trend measure, 2.68% was little changed from the previous month’s 2.71%.

Drilling down farther, the CPI for services less rent on shelter shows a 3.34% increase in our trend measure, although the monthly number has come down from 4.25% in January to 3.43% in February.

The Fed continues to be in a bit of a pickle. While inflation is moving in the wrong direction, there are signs of weakness in the labor market. At this time, however, keeping inflation in check is job one for the Fed and we see no convincing argument for lowering rates in the near future.

by paul gomme and peter rupert

The BLS announced that payroll employment dipped 92,000. The decline was pretty widespread as there were a lot of negative signs across almost all industries. The private sector declined 86,000. Both the information and government sectors continued their long decline.

The health care industry was likely affected the employment numbers. Healthcare work stoppages increased 58.3% and the number of workers involved rose 151.9% from 2024 to 2025 — the largest increase of any industry. Healthcare accounted for 40.3% of all striking workers and ranked first in total strike days with over 1.2 million. In January 2026, 31,000 members of UNAC/UHCP went on strike at Kaiser Permanente facilities in California and Hawaii — the largest open-ended strike of registered nurses and healthcare professionals in US history. After four weeks, the union announced an unconditional return to work as negotiations moved closer to resolution.

Nearly 15,000 nurses across four New York City hospitals began an open-ended strike on January 12, 2026. Nurses at Montefiore and Mount Sinai eventually ratified new contracts, while about 4,200 nurses at NewYork-Presbyterian remained on strike as of mid-February.

Average weekly hours remained at 34.3 and average hourly earnings increased from $37.13 to $37.32 (0.4%). Indeed, over that past couple of years, real earnings have risen as year over year earnings growth has exceeded CPI growth.

The unemployment nudged up from 4.32% to 4.44%

Policy Outlook

We expect to see lots of chatter about what the FOMC should do at its next meeting. The inflation rate remains above the Fed’s 2% target. The January employment report was generally considered meh; February’s will be a cause for concern. Output growth for 2025Q4 was neither too hot nor too cold. The war with Iran adds to uncertainty. Good time to hold rates steady?