Core PCE inflation climbed to 3.2% in March and first-quarter GDP grew 2%, a mix of hotter prices and softer-than-expected growth for the Fed.
Core inflation climbed in March while U.S. economic growth fell short of expectations in the first quarter, adding pressure to a Federal Reserve already facing conflicting signals on prices, growth and the labor market.
The core personal consumption expenditures price index, the Fed’s preferred inflation measure excluding food and energy, rose a seasonally adjusted 0.3% for the month and pushed the annual rate to 3.2%, the Commerce Department reported Thursday. The readings matched Dow Jones consensus estimates and marked the highest core inflation rate since November 2023.
Headline PCE inflation, which includes food and energy, rose more sharply, increasing 0.7% on the month and 3.5% from a year earlier. CNBC reported that consumers were facing escalating prices as the Iran war sent oil prices higher, with energy goods and services up 11.6% in the inflation report.
The same morning brought a separate Commerce Department reading showing gross domestic product expanded at a 2% seasonally adjusted annualized pace in the first quarter. That was an improvement from 0.5% growth in the fourth quarter of 2025, but below the 2.2% estimate.
The combination leaves policymakers with a difficult mix: inflation still running above target, growth that is not as strong as expected and a labor market that remains tight by some measures. The Labor Department reported initial jobless claims of 189,000 for the week ended April 25, down 26,000 from the prior week and below the 212,000 estimate. It was the lowest weekly claims reading since September 1969.
“This is a split-screen economy,” Heather Long, chief economist at Navy Federal Credit Union, told CNBC. “Companies and investors involved in AI are on fire. Meanwhile, middle and moderate income households are struggling with high gas prices and inflation that's back at the hottest level in three years.”
The reports landed one day after the Federal Open Market Committee voted to hold interest rates steady again. The decision exposed internal divisions: four officials dissented from the post-meeting statement, including three regional Fed presidents who objected to language suggesting the central bank’s next move would be a rate cut.
Details in the inflation report showed goods prices rising 1.4%, with energy the main driver, while services prices rose 0.3%. The increase in energy costs appeared to weigh on inflation-adjusted consumer spending. Personal spending rose 1.6%, while goods outlays slipped 0.1%.
For now, the data keep the Fed’s path uncertain. Inflation remains elevated, but the broader economy is sending mixed signals about demand, hiring and the strain higher prices are placing on households.
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