The Federal Reserve’s preferred inflation gauge ticked up slightly in June as tariffs on imports started raising the cost of some goods – dampening hopes for an interest rate cut in September.
The personal consumption expenditures (PCE) price index rose 0.3% last month. matching the the estimate of economists polled by Reuters. Year over year, the PCE increased 2.6%
Core PCE – which excludes volatile food and energy prices — also increased 0.3% from the month before – its highest rise since February and coming in hotter than expected, the Bureau of Economic Analysis said Thursday.
The figure rose 2.8% from the year before.
“Thursday’s PCE was stronger-than-expected and throws cold water on the idea of a fall rate cut,” Clark Bellin, president and chief investment officer at Bellwether Wealth, said in a note Thursday.
“Inflation remains sticky and justifies the Fed’s decision to keep interest rates unchanged at Wednesday’s meeting.”
Despite intense pressure from President Trump on Fed Chair Jerome Powell to lower rates, central bankers kept them between 4.25% and 4.5%.
Powell, responding to questions from reporters on the anticipated tariff-related price increases Wednesday, said “a reasonable base case is that these are one-time price effects,” but added “I think we’ve learned that the process will probably be slower than expected” and take time to fully understand.
The PCE data was included in the advance gross domestic product report for the second quarter published on Wednesday, which showed inflation cooling, though remaining above the Fed’s 2% target.
The GDP figures showed the US economy grew at a faster pace than anticipated, refuting predictions the the country would fall into a recession.
On Thursday, Trump once again bashed Powell for refusing to lower rates, which the president insists should be 1% or less.
“He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair,” Trump said in a Truth Social post.
“He is costing our Country TRILLIONS OF DOLLARS, in addition to one of the most incompetent, or corrupt, renovations of a building(s) in the history of construction!”
Two Fed governors voted against Powell’s “wait and see” approach – marking the first time in three decades that more than one official has dissented on an interest-rate vote.
Christopher Waller and Michelle Bowman called for the immediate lowering of rates, piling on to pushback against Powell – who has been reluctant to cut rates over fears that Trump’s tariffs could reheat inflation over the next few months.
Powell also wouldn’t commit to a rate cut when the Fed next meets in September.
“We have made no decisions about September,” hel said during a press conference Wednesday following the Fed’s two-day meeting.
“We don’t do that in advance. We’ll be taking that information into consideration and all the other information we get as we make our decision.”
Powell emphasized that the tariffs are “still quite early days” and that companies appear to be eating the bulk of the new charges for now, so data could change if these duties are passed along to consumers.
Last Friday, Trump had said he believed Powell was ready to start lowering rates after he joined the central banker in matching hard hats for a tour of the Fed’s controversial $2.5 billion renovation project at its headquarters.
When asked whether he thinks the Trump administration’s scrutiny over the renovations is tied to the push for lower rates, Powell said: “Not for me to say.”
He added that it “an honor” to host Trump at the Fed and “a good visit,” declining to comment on how the president’s public pressure could impact the Fed’s independence.
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