Fed’s Key PCE Inflation Gauge Rose in January as Q4 GDP Revision Shows Weak Pre‑Iran War Growth
The Fed’s preferred PCE inflation gauge rose in January even before the Iran war pushed gasoline prices higher, while a Q4 GDP revision showed softer pre‑war growth — real final sales to private domestic purchasers were revised down to a 1.9% annualized rate. January real consumer spending was just 0.1% with the personal saving rate up to 4.5%, job openings jumped by 396,000 to a 4.2% rate even as hiring and quits held steady, highlighting weaker underlying demand and mixed labor signals just as political pressure mounts for rapid rate cuts despite persistent core inflation and scant AI‑related investment.
📌 Key Facts
- Q4 GDP was revised down: real final sales to private domestic purchasers grew at a 1.9% annual rate in Q4, a 0.5 percentage-point downward revision that confirms softer underlying demand than initially reported.
- January consumer activity showed weakness — real consumer spending rose just 0.1% and the personal saving rate climbed to 4.5%, indicating households were pulling back even before higher gas prices fully hit.
- Labor market data were mixed: January job openings jumped by 396,000, lifting the openings rate to 4.2% and largely offsetting late‑2025 declines, while hiring and quit rates remained essentially unchanged.
- Business investment looked fragile: AI‑related investment, which had been touted as a potential growth ‘saving grace,’ was essentially missing from the Q4 data, raising questions about the durability of investment‑led growth.
- Economist Kathy Bostjancic warns Q2 may bring both weaker activity and faster inflation as oil‑price‑driven spikes in gasoline, diesel and fertilizer feed through to exports, business confidence and broader prices.
- Political and policy tensions are rising: former President Trump and Fed‑chair nominee Kevin Warsh are pushing for rapid rate cuts despite an above‑target core PCE inflation trend, sharpening the gap between the incoming political pressure and the inflation data.
📊 Relevant Data
Declining immigration in 2025 is projected to reduce U.S. GDP growth by 0.3 to 0.4 percentage points, contributing to weaker economic activity as seen in the Q4 2025 GDP revision.
How Tighter Curbs on Immigration Impact the U.S. Economy — Econofact
In 2023, food insecurity rates were 22.4% for Black non-Hispanic households and 22.7% for Latino households, compared to 10.4% for White non-Hispanic households, with rising food prices and inflation contributing to increased rates; U.S. population shares are approximately 13.6% Black, 19% Hispanic, and 58% White.
Map the Meal Gap 2025 Report — Feeding America
White Americans have roughly six times the amount of cash on hand in checking and savings accounts compared to other racial groups, indicating disparities in personal savings capacity amid rising saving rates.
Study: Race, Ethnicity, and Personal Finance in America — The Motley Fool
📰 Source Timeline (2)
Follow how coverage of this story developed over time
- Quantifies that real final sales to private domestic purchasers grew at a 1.9% annual rate in Q4 2025, revised down 0.5 percentage point, confirming softer underlying demand than initially reported.
- Reports that January real consumer spending growth was just 0.1% and that the personal saving rate climbed to 4.5%, suggesting households were pulling back even before feeling the full brunt of higher gas prices.
- Adds granular labor‑market data that January job openings jumped by 396,000, lifting the openings rate to 4.2% and largely offsetting late‑2025 declines, with hiring and quit rates essentially unchanged.
- Introduces economist Kathy Bostjancic’s specific projection that Q2 will bring both weaker activity and faster inflation due to oil‑price‑driven spikes in gasoline, diesel and fertilizer and knock‑on effects through exports and business confidence.
- Highlights the political‑policy angle that Trump and Fed‑chair nominee Kevin Warsh are actively pushing for rapid rate cuts despite the above‑target core PCE trend, sharpening the tension between data and political pressure.
- Notes explicitly that AI‑related investment, touted as a ‘saving grace’ for growth, was essentially missing in the Q4 data, raising further questions about the durability of business investment.