Inflation rose a tenth of a percentage point to 2.3% for the year ending in May, the Bureau of Economic Analysis reported in an update to the personal consumption expenditures index, the metric favored by the Federal Reserve.
The report was right in line with forecasters’ expectations, and mostly won’t sway investors’ outlook for the months ahead.
Economists at the Fed and in the private sector generally had expected that inflation would accelerate thanks to the tariffs imposed by President Donald Trump in the spring.
The threat of tariff-led inflation has prevented the Fed from moving to lower its interest rate target, Chairman Jerome Powell said in congressional testimony this week. An interest-rate cut would be expected to make it easier for businesses and households to borrow money to finance purchases, boosting commerce. Trump has criticized Powell harshly for declining to cut rates.
The slight rise in inflation is likely to solidify expectations that the Fed will not cut rates at its next meeting, which is scheduled for the end of July.
“For the moment, there is nothing of consequence to worry about on the inflation side of this report,” Carl Weinberg, chief economist for High Frequency Economics, wrote in a note on the PCE index release.
Core inflation, a measure that strips out volatile food and energy prices, rose a tenth of a percentage point to 2.7%.
In the month of May alone, prices rose 0.1%, and core prices rose 0.2%.
Officials at the central bank have split in recent days on the idea that they have to hold off on rate cuts because the tariffs will generate inflation.
Powell maintained in monetary policy hearings this week in the House and Senate that tariffs will entail higher inflation, even if they have not yet.
But Christopher Waller, a member of the Fed’s board of governors and a voting member of the monetary policy committee, has mostly dismissed such concerns, saying that the Fed could respond with tighter money if higher inflation does materialize. He backed a July rate cut in a recent TV appearance, citing signs of possible weakness in the labor market.
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Similarly, Gov. Michelle Bowman said she would support a rate cut in July.
At 4.2% in May, the unemployment rate is low by historical standards. In recent weeks, though, claims for unemployment benefits have risen, often an early sign of labor market weakening.
