Fed’s preferred inflation gauge shows price increases accelerated in June amid tariff uncertainty
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Diverging Reports Breakdown
Fed’s preferred inflation gauge shows price increases accelerated in June amid tariff uncertainty
The Federal Reserve’s preferred inflation gauge rose 0.3% in June. On an annual basis, core prices rose 2.8%, above the 2.7% economists had expected. The release comes just one day after the Fed opted to hold interest rates steady at its July meeting. The Fed will not cut rates until it is confident that a temporary rise in goods prices isn’t bleeding through into broader inflation and inflation expectations, the Fed said Wednesday. Meanwhile, data showed mixed signs of slowing economic activity. Real personal spending, which adjusts for inflation, increased 0.1%, in line with estimates.
The “core” Personal Consumption Expenditures (PCE) index, which strips out food and energy costs and is closely watched by the central bank, rose 0.3% from the prior month, in line with the 0.3% economists had expected and above the 0.2% increase seen in May.
On an annual basis, core prices rose 2.8%, above the 2.7% economists had expected and in line with May’s reading. May’s 2.8% reading was revised higher from an initially reported 2.7% increase.
“The above-target rise in core PCE prices in June, upward revisions to previous months’ data and the sharp rise in core goods inflation will do little to ease the Fed’s concerns about tariff-driven inflation,” Capital Economics assistant economist Harry Chambers wrote in a note to clients on Thursday.
The release comes just one day after the Fed opted to hold interest rates steady at its July meeting. Fed Chair Jerome Powell stressed that it’s still the “early days” of any tariff impact on inflation and that there is still “a long way to go” before the full effects will be clear.
“Tariffs are beginning to make their mark on the inflation data,” Oxford Economics deputy chief US economist Michael Pearce wrote in a note to clients. “While services inflation remains subdued, helped by slowing housing inflation, core goods prices are up sharply in recent months. As Federal Reserve Chair Jerome Powell argued on Wednesday, the Fed will not cut rates until it is confident that a temporary rise in goods prices isn’t bleeding through into broader inflation and inflation expectations.”
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Following the release, markets were pricing in a 61% chance the Fed holds rates steady again at its September meeting, up from just a 40% chance seen a month ago, per the CME FedWatch Tool.
Elsewhere in the release, data showed mixed signs of slowing economic activity. Real personal spending, which adjusts for inflation, rose 0.1%, in line with estimates. Real personal spending had decreased 0.2% in May. Meanwhile, personal income rose 0.3% after falling 0.4% the month prior.
Thursday’s PCE inflation data comes just one day after the Federal Reserve decided to leave interest rates unchanged at its July meeting. (Tom Williams/CQ-Roll Call, Inc via Getty Images) · Tom Williams via Getty Images
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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