The Federal Reserve’s preferred inflation measure came in above economists’ expectations, potentially fueling concerns that tariffs are seeping into the economy.
The consensus estimate pointed to a 2.5 percent reading for last month.
Core PCE inflation, which strips out the volatile food and energy categories, was unchanged at 2.8 percent. However, last month’s print topped the market estimate of 2.7 percent.
On a monthly basis, PCE and core PCE rose by 0.3 percent, in line with estimates.
Monetary policymakers place more emphasis on PCE over the consumer price index because it contains a broader scope and the weights of goods and services are updated more frequently.
The PCE price index was the final inflation report for June.
“Boom times are back—at least for now—as GDP is running at 3%, unemployment is low and inflation remains in check,” Chris Zaccarelli, CIO for Northlight Asset Management, said in a note emailed to The Epoch Times.
“As with so many things in the economy, the situation is very fluid and we have yet to see the full impact of tariffs flowing through to inflation.”
Early indicators suggest inflation will hold steady in the next batch of reports.
The latest PCE numbers follow the Federal Reserve’s decision to hold interest rates steady for the fifth consecutive meeting.
Fed Chair Jerome Powell believes tariffs are beginning to appear in the data.
“Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen,” Powell told reporters at the post-meeting press conference on July 30.
National Economic Council Director Kevin Hassett criticized the Federal Reserve’s decision, saying it is “obsessed with the idea that tariffs are going to cause inflation.”
“The idea that tariffs are going to cause an explosion in inflation is something that people are going to have to give up.”
However, Powell’s remarks might have spooked the futures market as investors trimmed their expectations for a September interest rate cut.
Natalia Lojevsky, managing director at CIFC Asset Management, says the Fed will restart its rate-cutting cycle in the fall.
“We believe that the central bank likely retains its easing bias in the fall but inflation readings for July and August will ultimately determine the timing of the first cut,” Lojevsky said in a note emailed to The Epoch Times.
Dollars and Cents in June
Income and spending levels rebounded last month.Personal income rose at a higher-than-expected pace of 0.3 percent following a 0.4 percent decline in May.
The increase in personal income was fueled by higher compensation for employees and government transfer payments.
Personal spending also climbed 0.3 percent, up from the 0.2 percent gain in the previous month. This came in slightly below the consensus forecast of 0.4 percent.
After adjusting for inflation, real personal income, excluding transfer receipts, fell 0.2 percent, while real spending remained flat.
Recent data suggest that consumers have reopened their wallets and have either shrugged off tariff fears or shopped ahead of higher prices.
Scores of surveys point to rebounding confidence and sentiment among consumers.
“Consumer confidence has stabilized since May, rebounding from April’s plunge, but remains below last year’s heady levels,” said Stephanie Guichard, senior economist of global indicators. “In July, pessimism about the future receded somewhat, leading to a slight improvement in overall confidence.”
