The number everyone on Wall Street was dreading is finally here, and it’s worse than the whispers suggested. As of this morning, February 20, 2026, the Bureau of Economic Analysis dropped the latest Personal Consumption Expenditures (PCE) report—the Federal Reserve’s absolute favorite inflation gauge—and it is flashing warning signs.
For months, investors have been pricing in a victory lap, betting heavily that inflation was tamed and interest rate cuts were imminent. Today’s data didn’t just pour cold water on that fire; it completely extinguished it. The narrative has officially shifted from “When will they cut?” to “Are we stuck?”
Deep Dive: The Numbers That Spooked the Market
Here is the factual breakdown of why trading desks are scrambling today:
The Core Number: The “Core” PCE price index, which strips out volatile food and energy costs and is the Fed’s true north, jumped to 3.0% year-over-year in December 2025. This is a significant tick up from the previous 2.8%, moving in the exact opposite direction of the Fed’s 2% target.
Monthly Heat: On a month-over-month basis, core prices rose 0.4%, a pace that suggests inflation isn’t just lingering—it might be re-accelerating.
The Goldman Warning: Just days before this release, economists at Goldman Sachs issued a rare “reset” of their inflation outlook, warning that statistical quirks and “sticky” service prices were hiding the real danger. Today’s report confirms their bearish call was spot on.
This isn’t just a blip. It’s a trend. The “last mile” of the inflation fight—getting from 3% down to 2%—is proving to be excruciatingly difficult. The easy wins from supply chain fixes are over; now we are dealing with entrenched service-sector inflation that simply refuses to budge.
The Impact: Rate Cuts are Off the Table
What does this mean for your wallet and your portfolio? In short: High-for-longer is back.
Until yesterday, futures markets were pricing in a potential interest rate cut as early as spring. That window has now slammed shut. With Core PCE sitting stubbornly at 3%, Federal Reserve Chair Powell has zero cover to lower rates. If anything, the conversation inside the FOMC will likely shift to maintaining these restrictive levels deep into late 2026 to ensure prices don’t spiral again.
Expect continued volatility in stocks as the market digests this “new old” reality. Mortgage rates, which tend to track long-term bond yields, are unlikely to find relief anytime soon. The soft landing might still be possible, but the runway just got a lot shorter.
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