#PCEInflationWatch The Federal Reserve’s preferred measure of underlying inflation remained muted in December and real incomes were soft, which should support further reductions in interest rates this year.

The so-called core personal consumption expenditures price index, which excludes food and energy items, rose 0.2% from November and 2.8% from a year earlier, according to Bureau of Economic Analysis data out Friday.

However, real disposable income barely rose for a second month. That may be pressuring consumers to dip into savings more, as the saving rate fell to 3.8%, the lowest in two years.

That’s far below the pre-pandemic average, “putting the consumer in a precarious position if incomes weaken,” Jeffrey Roach, chief economist LPL Financial, said in a note.

On a three-month annualized basis — a metric economists say paints a more accurate picture of the trajectory of inflation — the core PCE price gauge advanced 2.2%, the least since July.

The data should help temper concerns about inflation rearing back up again after a brief acceleration in prior months. Fed Chair Jerome Powell, speaking after the central bank held rates steady Wednesday, said officials need to see more progress toward their 2% target before resuming lowering borrowing costs — and they’re wary of uncertainties over President Donald Trump’s policies.