- Inflation Data Surprises The Fed: Recent inflation reports, especially the rise in core PCE to 3.0%, have disappointed hopes for rate relief soon, and the data was delayed due to a government shutdown.
- Fed's Cautious Stance: Despite holding rates steady at 3.5%-3.75%, Fed officials are more cautious now, with some even considering possible rate hikes if inflation remains high.
- Interest Rate Predictions Shift: Mainstream forecasts for rate cuts have been pushed back to late 2026, and future moves depend heavily on inflation data and leadership decisions at the Fed.
- Impact on Borrowers: Current borrowing rates remain high because lenders follow the Fed's rates, making it less likely for personal loan APRs to drop anytime soon, so shopping around is more important than ever.
- Mixed Inflation Signals: While CPI shows signs of cooling, PCE—what the Fed watches—is still high, creating uncertainty about when and if rates will fall, influencing market expectations and loan rates.
The Federal Reserve’s preferred inflation measure came in hotter than expected in the latest release, dealing another blow to borrowers hoping for rate relief in the first half of 2026. The Bureau of Economic Analysis reported that core PCE, which strips out food and energy, rose 3.0% year-over-year in December, topping the 2.9% consensus forecast. Headline PCE climbed to 2.9%, up from 2.6% the prior period.
The release came with an unusual asterisk: a 43-day federal government shutdown delayed the data, meaning the February 20 report reflected December 2025 figures rather than January’s. The substance was sobering regardless. Services inflation excluding energy and housing, sometimes called “supercore,” surged 0.6% in the month alone, its sharpest one-month gain in nearly a year. Airline fares spiked 6.5%, and medical costs kept climbing. Those are not the kind of numbers that give the Federal Reserve reason to move.
The Fed held the federal funds rate steady at 3.5% to 3.75% at its January 2026 meeting, after three cuts late in 2025. The January FOMC minutes, released February 18, showed officials growing more cautious, not less. According to Bloomberg, several members raised the possibility of a rate increase if inflation stays stubborn. That is a significant shift in tone from where the committee stood six months ago.
Goldman Sachs and Barclays have both pushed their first rate-cut forecasts to September 2026. Bank of America sees two quarter-point cuts, in June and July, but acknowledges thatit depends heavily on leadership changes at the Fed, not just the data. Chair Jerome Powell’s term expires in May, and his likely successor, Kevin Warsh, is expected to favor lower rates. That political dimension adds uncertainty on top of an already murky inflation picture.
For personal loan borrowers, the practical translation is straightforward: the window for significantly cheaper borrowing has not opened and may not open soon. The average personal loan APR has tracked closely with the federal funds rate’s trajectory, and with the fed funds rate sitting more than a full percentage point above where it was at the start of 2025’s cutting cycle, lenders have little competitive pressure to drop rates on their own. Borrowers who locked in loans in 2024 may actually hold better rates than someone applying today.
That said, the spread between the best and worst offers in the personal loan market remains wide. A borrower with strong credit can still find rates in the 10% to 13% range, while someone with a thinner credit file might be quoted north of 25%. Shopping matters more, not less, when rates are elevated. Comparing the best personal loans across multiple lenders before committing is the single most reliable way to avoid overpaying on interest in this environment.
There is one counterintuitive development worth tracking. January CPI, released February 13, came in at 2.4% year-over-year, the lowest level since May 2025, below the 2.5% forecast. Core CPI eased to 2.5%, its lowest reading since April 2021. Those headline CPI numbers are moving in the right direction. The problem is the Fed watches PCE, not CPI, and PCE is telling a different story. The gap between what CPI suggests and what PCE confirms has left markets reading two different scripts at once.
The next read on PCE, reflecting January data, is scheduled for March 13. If it shows further cooling, market expectations for a June cut will firm up quickly. If it stays elevated, Goldman and Barclays may push their forecasts back again. Current personal loan rates will move in step with those expectations, so borrowers weighing whether to apply now or wait have a clear date to watch.
One group that should not wait: borrowers carrying high-interest credit card debt at 20%-plus APRs. Even in a 3.75% federal funds rate environment, a personal loan at 12% to 15% is a meaningful improvement over revolving credit card balances. The calculus for debt consolidation has not changed because the Fed is on hold. If anything, “higher for longer” makes the math for consolidation more compelling, not less, since credit card rates tend to reset upward with every rate hold that delays relief.
What to watch: The March 13 PCE release will set the tone for the Fed’s March 18-19 meeting. Powell has signaled the committee wants to see more evidence of disinflation before moving. If supercore services inflation repeats its December spike in January’s data, a June cut becomes a coin flip. Borrowers with strong credit who need funds now should apply; those who can wait a few weeks have reason to check back after March 13.
