What’s the only announcement more exciting than the album of the summer dropping? Why, personal spending data, of course!
The Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, rose 0.1% in April and jumped 2.1% annually—only slightly above the Fed’s stated 2% goal. It also marks a slowdown from the 2.3% increase in March, and is the lowest print this year so far.
Core PCE, which excludes volatile food and energy prices, also rose 0.1% month over month and jumped 2.5% annually, cooler than the revised 2.7% increase in March and the smallest annual gain in four years.
Time to pop the champagne? Not so fast, according to the pros.
“Any summer celebration may be premature: a tariff-induced inflation storm is on the horizon,” explained EY-Parthenon Chief Economist Gregory Daco. “Indeed, the April data likely understate the scale of policy shifts to come. Customs duties suggest the effective tariff rate stood at around 5% in April—well below the announced average of 25%.”
Shoppers are throwing in the towel
Slowing prices wasn’t the only data we got today: The Bureau of Economic Analysis reported that inflation-adjusted personal spending only rose 0.1% in April, a steep drop from the 0.7% increase the month prior.
Meanwhile, households saved up instead of splashing out: The personal savings rate jumped 0.6% to 4.9% in April, the biggest gain since last May.
Today’s data reflects the larger trend we’ve been seeing ever since President Trump unveiled that fateful poster board: People are freaked out by tariffs and subsequently turning down the volume on their spending.
Trump vs Powell Round Two
All this data creates quite the puzzle for Fed Chair Jerome Powell. The Fed can either raise rates to counteract signs of a contracting economy—but risk stoking inflation. Or, the Fed could keep rates the same to combat prices that are rising thanks to tariffs, but then face the threat of a broader downturn if other pillars of the economy, such as labor, begin to weaken.
Making sense of market moves
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Powell’s decision gets even harder when you take into account how Trump is turning up the pressure. Just yesterday, Trump directly told Powell to lower rates in a meeting, according to the White House. Powell demurred, stating that any decisions the Fed makes will be based on economic data.
The bottom line: “At some point the tariff uncertainty has to be addressed—and if it can be done quickly enough before damage is done to the economy, then there can be a resumption of the bull market and we can go back to all-time highs. However, if it takes too long to get clarity and the economy begins to stall, then the Fed will have no choice but to cut rates aggressively—so for those looking for rate cuts, be careful what you wish for,” warned Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management.
Currently, traders are pricing in a 98% chance that the Fed will keep rates steady at the FOMC’s next meeting in June.
We’re betting that all Powell wants to hear this summer is some peace and quiet.—LB