UPDATE: This article includes additional information from an analyst.
The Federal Reserve's preferred inflation index pulled further away from the central bank's 2% target, underscoring the central bank's wait-and-see-approach to lowering interest rates.
Prices rose by 2.3% on an annualized basis in May, according to the Bureau of Economic Analysis's Personal Consumption Expenditures report released Friday. That compares with a revised 2.2% increase in the index in April.
Core PCE, which excludes food and energy prices and is the Fed's preferred inflation metric, was up 2.7% in May. Prices rose 0.1% from April and core PCE climbed 0.2%.
Both readings were in line with the Consumer Price Index's
"This is not going to be at all surprising to [the Fed]," said Michael Redmond, a U.S. policy economist for Medley Global Advisors. "The overall message is still that we had very good readings after a very hot start to the year. January and February were uncomfortably hot, and then we had three benign readings in a row."
The marginal uptick supports Fed Chair Jerome Powell's cautious approach to adjusting monetary policy, though, citing uncertainty surrounding the impacts of higher tariffs.
"The effects on inflation could be short-lived — reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent,"
Fed Gov. Michael Barr backed Powell's stance at an event in Omaha, Nebraska, on Tuesday. Barr said he expects tariffs to increase inflation and that the Fed's monetary policy is "well positioned to allow us to wait and see how economic conditions unfold."
The Trump administration's 90-day pause on its sweeping tariffs is set to expire on July 9, although White House Council of Economic Advisers chairman Stephen Miran said the administration would extend the deadline for countries negotiating in good faith, Yahoo Finance reported.
President Donald Trump has finalized a deal with the United Kingdom and is in search of one with Canada, which threatened to increase tariffs on steel and aluminum.
The European Union has also pledged to retaliate if the U.S. baseline 10% tariffs remain, Bloomberg reported. Trump has threatened up to 50% tariffs on European goods if no deal is made.
Despite the uncertainty of the tariffs' impact, Trump has continued to berate the Fed and Powell to cut interest rates. The president said in a
"What a difference this would make. If things later change to the negative, increase the Rate," Trump posted. "I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come."
Fed Vice Chair for Supervision Michelle Brown and Gov. Christopher Waller have both suggested that it may be time to lower rates as well.
"I think it is likely that the impact of tariffs on inflation may take longer, be more delayed and have a smaller effect than initially expected, especially because many firms front-loaded their stocks of inventories," Bowman said in a
Waller also doesn't expect tariffs to significantly affect inflation and said in an interview with CNBC last week that the Fed could cut rates as soon as July.
But Powell has remained firm in his stance to be patient.
"For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance," he said.
