Fed’s preferred inflation gauge cools to lowest level since september — calming rattled markets

The Federal Reserve’s preferred inflation gauge cooled to its lowest level since last fall, helping to calm jittery markets Friday despite rising trade tensions between the US and China. The

Personal Consumption Expenditures (PCE) index rose just 2.1% in April compared with a year earlier, down from 2.3% in March and the lowest since September, according to data released Friday

by the Commerce Department. Excluding the volatile food and energy categories, core PCE prices rose 2.5% from a year earlier, below the March figure of 2.7%, and the lowest in more than

four years. Economists track core prices because they typically provide a better read on where inflation is headed. The Commerce Department data came out hours after President Trump accused

China of violating a tariff agreement, ramping up tensions in a trade war that has roiled global markets and businesses. Traders continued to bet that the U.S. central bank will cut its

target for short-term borrowing costs in September. At 11 a.m. ET, the Dow Jones Industrial Average fell 45 points, or 0.1%, to 42,173, the S&P 500 lost 17 points, or 0.43%, to 5,894 and

the Nasdaq Composite dropped 103 points, or 0.5%, to 19,071. The figures show inflation is still declining from its post-pandemic spike, which reached the highest level in four decades in

July 2022. EXPLORE MORE Economists and some business executives have warned that prices will likely head higher as Trump’s widespread tariffs take effect, though the timing and impact of

those duties are now in doubt after they were struck down late Wednesday in court. On a monthly basis, overall prices and core prices both increased just 0.1% from March to April. The cost

of big-ticket manufactured goods rose a hefty 0.5%, though that increase was offset by a 0.1 decline in other goods, such as groceries. The cost of services rose just 0.1% from March to

April. The big increase in durable goods prices could reflect the early impact of tariffs. Americans also cut back their spending on longer-lasting factory goods in April, the report showed.

Overall consumer spending — which includes spending on services — rose 0.2% in April from March, the report said, but that’s down from a big 0.7% rise in March. The slowdown in spending

could reflect some early caution on the part of consumers, economists said, in response to higher goods prices. It also suggests that some of the spending jump in March reflected consumers

purchasing items like cars to get in front of the impact of tariffs. “The pulling forward of consumer spending ahead of the tariff increases will continue to dampen household spending in the

coming months, especially as they face higher prices and a softening labor market,” Kathy Bostjancic, chief economist at Nationwide, said in an email. “We anticipate that the improved

inflation trend will reverse in the second half of the year as companies are forced to begin passing along a portion of the increased tariffs in order to protect profit margins.” Walmart

executives said earlier this month that the retail giant would increase prices for many products in May and June to account for the tariffs, while electronics chain Best Buy’s CEO Corie

Barry said Thursday the company is increasing some prices as well because of the duties, as a “last resort.” At the same time, incomes — before adjusting for inflation — rose a healthy 0.8%

in April. Much of that gain reflected an increase in Social Security benefits for some retired teachers, fire fighters, and federal workers whose incomes previously weren’t fully counted

toward Social Security benefits. The inflation-fighters at the Fed said at their most recent meeting May 6-7 that inflation is still elevated, compared to their target of 2%. Fed officials,

who focus more on core prices, broadly support keeping their key interest rate steady while they evaluate the impact of the tariffs on inflation and jobs. The court ruling last Wednesday

said that most of Trump’s tariffs were unlawful, including his duties on imports from Canada, Mexico, and China, as well as those on more than 50 other countries. Tariffs on steel, aluminum,

and cars were implemented under different laws and remain in place. But the duties were allowed to remain in effect while the Trump administration appeals the ruling against them. And

administration officials say they will find other legal authorities, if needed, to implement the tariffs. As a result, what tariffs will end up in place and for how long remains highly

uncertain.