In recent months, core personal consumption expenditure (PCE) inflation in May reached 2.7%, marking a modest rise above the Fed’s target of 2%, despite the unusual persistence of high import taxes. This contrasts with the 2.6% consensus forecast, reflecting the Fed’s cautious approach to managing inflationary pressures. Despite the historical data suggesting only modest inflationary increases from 1936 to 2024, the recent spike in tariffs has not yet materialized significant inflationary effects, though concerns remain for potential effects in the coming months.
The strategic competition between the Federal Reserve and President Donald Trump has been intense, with Trump′s aggressive trade measures presenting a significant risk to inflation. While core PCE inflation for May was 2.3%, which meets the Fed′s estimates, the timing of the spike and the speculative nature of the data have accounted for the persistence of price changes. The Fed′s strategy to cut rates cautiously avoids the potential of deflation, but Trump′s demand for aggressive cuts has led to a focal point for both nations.
However, these high tariffs have not yet triggered a significant spike in core PCE inflation, as evidenced by the milder data so far. Experts warn that Fed gridSize of the potential to amplify inflationary pressures could still unfold, but this remains unsure. The situation remains a focal point for Fed signaling its intention to weigh the short- and medium-term success of Trump′s trade policies, while avoiding the risks of rising inflation.
Bank of America economists predict that core PCE inflation in the coming year could reach 3.1%, surpassing the 2% target by the end of the year, as high tariffs squeeze margins and force businesses to pass through tariffs to consumers. However, the chance of sustained inflationary growth chiming in only to subside by the end of 2026 remains uncertain. This result suggests the Fed′s cautious monetary policy is viable, despite the complexities of high-zA hue.
