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Investing.com - The Federal Reserve’s preferred gauge of inflation edged up by 0.1% on a month-on-month basis in May, in line with expectations and matching the prior month’s rate, in the latest sign of benign price gains despite worries over the impact of sweeping U.S. tariffs.
In the twelve months to May, the Commerce Department’s personal consumption expenditures price index rose by 2.3%, slightly faster than an upwardly-revised 2.2% in April and also equaling economists’ projections.
Stripping out volatile items like food and fuel, the so-called "core" PCE index ticked up to 0.2% month-on-month and 2.7% year-over-year, both marginally hotter than anticipated.
"The slightly firmer core PCE is somewhat hawkish compared to the cooler May consumer price index/producer price index from earlier in the month, but the overall inflation picture isn’t changing dramatically and the Federal Reserve would very likely be cutting right now if not for tariff risks," analysts at Vital Knowledge said in a note.
Meanwhile, U.S. consumer income and spending both missed expectations, declining by 0.4% and 0.1%, respectively. Consumer expenditures, which make up around two-thirds of the American economy, were weighed down by a steep fall in spending on cars and gas.
The data comes as Fed policymakers have taken a wait-and-see attitude to future interest rate changes in the coming months, flagging wariness over the impact of President Donald Trump’s aggressive tariff agenda on inflation and wider activity.
Fed Chair Jerome Powell reiterated this stance during Congressional testimony earlier this week, saying he would like to see further indications of muted price pressures in June and July before moving forward with further policy easing. Although recent figures have shown to a contraction in the U.S. economy in the first quarter and an elevated number of Americans claiming unemployment benefits, inflation has stayed mostly tepid.
Powell’s approach has drawn the ire of Trump, who has repeatedly called on the Fed to rapidly cut borrowing costs to help bolster growth. Media reports have suggested that an exasperated Trump has been toying with the idea of naming his replacement for Powell in September or October, potentially creating a "shadow" central bank leader in the final months of Powell’s tenure.