The Federal Reserve’s preferred inflation metric released Friday shows inflation ticked up in May alongside declining levels of both consumer spending and personal income in a mixed bag of data that points to a slowing U.S. economy.
The U.S. Commerce Department’s personal consumption expenditures price report for May found overall inflation moved up to an annual rate of 2.3% last month, increasing from 2.1% in April. On a monthly basis, prices on consumer goods and services increased 0.1% in May.
Core PCE inflation, which strips out volatile food and energy prices, came in at 2.7% in May, up from April’s 2.6% measure and an increase of 0.2% month-over-month.
Consumer spending rates and income levels in May both defied pre-report expectations of nominal growth last month with spending declining by 0.1% and income down 0.4% on an annual basis.
While predictions of tariff-related prices increases have yet to show up meaningfully in U.S. inflation readings, many economists posit that cost increases are still on the way but approaching slowly as retailers move through inventory stockpiled ahead of the new trade levies and costlier raw goods for manufacturers have yet to reach the shelves in finished products.
“This morning’s news was consistent with other reports showing the economy gradually losing momentum in the second quarter, ahead of the brunt of tariff increases expected to wash ashore during the summer and early fall,” Gary Schlossberg, market strategist at the Wells Fargo Investment Institute, told CNBC.
Schlossberg said the report helps “keep hopes alive” for a July rate cut, though he still sees such talk as “premature.”
Will the Fed cut interest rates?
The latest Commerce Department data provides no additional clarity for the Fed ahead of its next rate-setting meeting in late July. At its June meeting last week, the monetary body held fast on its current federal funds rate of 4.25% to 4.5% which has remained unchanged since a series of reductions in late 2024.
Current expectations are that the Fed will continue its wait-and-see approach in July and leave rates unchanged, a policy direction that has riled President Donald Trump who continued his haranguing of the body, calling for an immediate interest rate reduction and leveling personal attacks against Fed Chairman Jerome Powell.
During comments made from the NATO summit in The Hague, Netherlands earlier this week, Trump told reporters he thought Powell was doing a “terrible” job and suggested the Fed leader, who Trump nominated for the position during his first term, has “a low IQ for what he does.”
“I think he is a very stupid person, actually,” Trump said.
What Utahns say about Trump’s handle on inflation
U.S. inflation has marched down since hitting a 40-year high of 9.1% in June 2022, but rates have remained stubbornly above the Fed’s target annual rate of 2% since then. And while Trump made addressing inflation issues a forward message in his successful campaign for a second term, Utahns have mixed opinions about the job he’s done so far.
The reviews, perhaps not surprisingly, break sharply along partisan lines.
In a statewide online survey conducted May 16-21 of 805 registered Utah voters, HarrisX asked respondents “Do you approve or disapprove of the job Donald Trump is doing handling inflation?”
Overall results were essentially split with 50% of poll participants saying they somewhat or strongly approve and 43% falling into the somewhat or strongly disapprove camp. But that near equanimity dissolves when the responses are parsed by political affiliation.
Some 70% of Republican respondents versus 19% of Democrats weighed-in as somewhat or strongly approving of Trump’s work on inflation. On the flip side, only 22% of Republicans said they somewhat or strongly disapprove of Trump’s inflation tactics, against 81% of Democrats who participated in the poll.
The responses when asked “Has inflation during the Trump Administration gotten better, worse or stayed the same?” were, again, nearly evenly disbursed among the poll participants, outside the lens of politics.
Overall, 31% of respondents said inflation has gotten better since Trump took office, 36% said worse and 33% said inflation was about the same.
When flying their party colors, 41% of Republicans versus 14% of Democrats said inflation was better so far in Trump’s second term, while 19% of Republicans next to 70% of Democrats believe inflation has become worse. For those who told pollsters that inflation from their perspective has stayed the same since Jan. 20, 40% were Republicans and 17% were Democrats.