The Federal Reserve’s preferred measure of inflation saw a slight decline in June as tariffs on imported goods began raising costs for some products.
The Personal Consumption Expenditure (PCE) price index climbed by 0.3% last month, aligning with economists’ predictions from a Reuters survey. Year-over-year, PCE increased by 2.6%.
Core PCE, which strips out the more volatile food and energy prices, also rose by 0.3% since the prior month. Interestingly, this is the highest increase since February and surpassed expectations, as reported by the Bureau of Economic Analysis on Thursday.
Overall, prices were up 2.8% compared to the previous year.
Clark Bellin, president and chief investment officer of Bellwether Wealth, commented on the unexpected strength of Thursday’s PCE data, saying it undermines any arguments for lowering interest rates in the near term.
“Inflation is proving to be persistent, supporting the Fed’s decision to maintain interest rates at the meeting on Wednesday,” he added.
Amid pressures from President Trump, who had been vocal about interest rate reductions, the Federal Reserve decided to keep rates between 4.25% and 4.5%.
When asked about the potential impact of tariffs on pricing, Powell indicated that a one-time price effect was the “reasonable basic case,” but acknowledged that the process may take longer than anticipated.
The PCE data was part of the Gross Domestic Product (GDP) report for the second quarter, released on Wednesday, which suggested the U.S. economy may grow faster than previously thought, contrary to recession fears.
On Thursday, Trump criticized Powell again for his reluctance to lower rates, insisting they should be below 1%.
In a post on Truth Social, Trump stated, “He’s too late, too angry, too political, and unable to do the chair work.” He added concerns about significant spending and costly construction projects.
For the first time in three decades, two members of the Federal Reserve opposed Powell’s cautious approach. Christopher Waller and Michelle Bowman pushed for an immediate rate cut, opposing Powell’s hesitance due to fears that tariffs could intensify inflation down the line.
Powell, however, did not indicate that any rate reductions would happen at the next meeting in September.
He emphasized that decisions about September would not be made ahead of time, as they take all incoming information into account.
Powell noted that the effects of tariffs are still unfolding and that data could fluctuate as costs are eventually passed on to consumers, although businesses appear to be absorbing most of the new fees at this stage.
Last Friday, Trump suggested that Powell might be inclined to lower rates, following a joint visit to the Fed’s $2.5 billion renovation project.
When asked whether the scrutiny over the renovations was allied to lower rate pressures, Powell declined to comment directly but did express that having Trump visit the Fed was an “honor,” and he refrained from discussing the potential impact of Trump’s public pressure on the Fed’s independence.
