The Federal Reserve’s preferred inflation measure surged as predicted last month, quelling headwinds for the central bank’s goal of gradually reaching the 2% target, while a strong surge in personal spending continued to reiterate the health of U.S. consumers.

The Personal Consumption Expenditures price index rose 2.6% in December 2024 on a year-over-year basis, according to data released Friday. This means an acceleration from the previous 2.4% but in line with economic forecasts of 2.6%, as tracked by TradingEconomics estimates.

It’s also the third consecutive increase in annual PCE inflation, following a low of 2.1% in September of last year. On a monthly basis, the PCE price index rose 0.3%, up from 0.1% in the prior month, but in line with expectations.

Core PCE inflation, which excludes volatile energy and food prices, held steady at 2.8% year over year, matching forecasts. On a monthly basis, core PCE rose 0.2%, also aligning with estimates.

In its December macroeconomic projections, the Federal Reserve raised its 2025 inflation outlook, expecting both headline and core PCE inflation to average 2.5% in 2025.

Meanwhile, personal income increased 0.4% month over month in December, accelerating from 0.3% in November, in line with expectations. Personal spending spiked 0.7%, up from the previous 0.6%, beating forecasts of 0.5% and marking the strongest increase since March 2024.

Market Reactions

The U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF , held broadly steady minutes after the release.

Treasury yields inched marginally higher, with the 10-year yield up by 2 basis points to 4.54%.

Futures on major U.S. indices traded mostly in the green in New York premarket trading, with contracts on the S&P 500 up 0.5%, although a tad lower following the PCE release. On Thursday, the SPDR S&P 500 ETF Trust ( SPY ) closed 0.5% higher.

Gold prices – tracked by the SPDR Gold Trust – remained steady at record highs of $2,800 per ounce, up 0.4% for the day.

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