The Federal Reserve appears set to remain on the sidelines after fresh inflation data released Thursday showed consumer prices continuing to weigh on American wallets.
The personal consumption expenditures price index increased a seasonally adjusted 0.4% for the month, putting the 12-month inflation rate at 3.8%, the Commerce Department reported.
Economists surveyed by Dow Jones had been looking for respective readings of 0.5% and 3.8%, meaning the monthly figure came in slightly softer than expected.
Excluding food and energy, core prices rose 0.2% for the month and 3.3% for the year, against estimates of 0.3% and 3.3% respectively.
The 12-month level for headline inflation was the highest since May 2023, while the annual core level marked its peak since November 2023.
While annual rates were in line with forecasts, the softer monthly readings offered some hope that the burst in prices from the previous month had begun to ease.
The Fed uses the PCE measures as its prime forecasting and policy tool, with officials generally considering core a better indicator of long-term inflation trends given its exclusion of volatile gas and grocery components.
First-quarter GDP growth also disappointed, accelerating at an annualized rate of just 1.6%, below the initial Commerce Department estimate of 2%, with downward revisions to consumer spending and investment cited as causes.
Consumer spending increased 0.5% in April, meeting forecasts, though income was flat against an expected 0.4% increase, with much of the spending appearing to come from a drawdown in personal savings.
The personal savings rate fell to 2.6%, its lowest level since June 2022, raising questions about the sustainability of consumer spending going forward.
On the inflation front, goods prices jumped 0.7% in April, pushed by gasoline, which surged 5.5%, while services prices rose 0.3% for the month.
Housing prices broadly increased 0.5%, marking the biggest monthly gain going back at least until January 2025, adding further pressure on consumers already stretched by elevated costs.
Initial jobless claims for the week ended May 23 totaled a seasonally adjusted 215,000, up 5,000 from the prior period and slightly above the 213,000 forecast, according to the Labor Department.
Orders for durable goods such as aircraft, appliances, and computers soared 7.9% in April, well ahead of the 3.5% estimate, though orders excluding transportation were up just 1.1%.
Traders expect the Fed to stay on hold until at least late in 2026 and are currently pricing the likelihood that the central bank’s next move will be a rate increase, possibly in the early part of the following year.
Inflation had been ticking closer to the central bank’s 2% goal, but the Iran war and the impact from tariffs has derailed the Fed, with policymakers recently placing greater emphasis on inflation dangers.
New Fed Chair Kevin Warsh has indicated he believes the central bank’s benchmark rate could be lowered, though he is likely to face opposition from the rest of the Federal Open Market Committee.
