Consumer prices experienced a slight increase as per the preferred inflation indicator of the Federal Reserve, in May.
In recent economic news, the Federal Reserve has maintained its independent stance and cautious approach to monetary policy, as it waits for more data reflecting the impact of tariffs on inflation and labor market conditions.
According to the Commerce Department's PCE report, the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose 0.1% on a monthly basis and 2.3% compared with a year ago. Wages and salaries also saw a 0.4% increase in May. However, the personal savings rate as a percentage of disposable personal income was slightly lower at 4.5% in May, compared to 4.9% in April.
Fed Chair Jerome Powell has strongly defended the Federal Reserve's independence amid criticism, particularly from former President Donald Trump. Powell emphasized a commitment to the Fed's dual mandate—maximizing employment and maintaining price stability—and stated the Fed's decisions will be based on economic data and not political pressures.
Powell reiterated a "wait and see" approach regarding tariff effects on the economy and inflation. While acknowledging that inflation might rise later this summer partly due to tariffs, the Fed prefers to evaluate actual economic outcomes before adjusting monetary policy. Powell underscored that the economy remains in solid shape, justifying this cautious stance despite ongoing political pressure to cut rates to reduce government borrowing costs and stimulate growth.
The market's outlook for the course of rate cuts changed little in response to the PCE report, with a 79% probability of the Fed holding rates steady in July and a 73% chance of a 25-basis-point cut in September. Prices for nondurable goods were up 0.1% for the month and down 0.2% from last year, while durable goods prices were flat compared with the prior month and 0.5% higher than a year ago.
Meanwhile, the Trump administration continues to pressure for interest rate cuts, arguing that lower rates would save taxpayers billions in interest and bolster economic growth. However, Powell and the Fed have resisted this pressure, underscoring the importance of maintaining independence from political influence to preserve credibility and effectiveness.
In conclusion, the Federal Reserve is currently holding interest rates steady, committed to independence, and taking a data-driven, cautious approach to assessing how tariffs are affecting inflation and the broader economy before considering rate cuts. Markets and observers are watching closely, but the Fed remains focused on its mandate rather than political demands.
- The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, rose by 0.1% monthly and 2.3% yearly, while the personal savings rate decreased slightly to 4.5%.
- Fed Chair Jerome Powell emphasized the Fed's commitment to maintaining price stability and maximizing employment, stating that the Fed's decisions will be based on economic data, not political pressures.
- Despite ongoing pressure from the Trump administration to cut rates, the Fed has resisted this pressure, underscoring the importance of maintaining independence from political influence to preserve credibility and effectiveness.
- The market's current outlook suggests a 79% probability of the Fed holding rates steady in July and a 73% chance of a 25-basis-point cut in September, indicating a cautious approach toward monetary policy amid uncertainty about the impact of tariffs on the economy and inflation.
