Fed’s preferred gauge rises just 0.1% while savings rate jumps to highest in nearly a year
Inflation in the United States edged lower in April, with the Federal Reserve’s preferred price gauge showing subdued monthly growth and consumers reining in their spending amid heightened uncertainty around tariffs and trade policy.
The Personal Consumption Expenditures (PCE) price index rose just 0.1% for the month, holding the annual inflation rate at 2.1% — the lowest in five months. Core inflation, which strips out food and energy, also rose 0.1% month-on-month and 2.5% on an annual basis, slightly below expectations.
The data, released Friday by the Commerce Department, paints a picture of cautious households and easing price pressures, even as tariffs implemented by President Donald Trump earlier in the month have yet to materially affect consumer prices.
Consumer restraint, rising savings
Consumer spending — which accounts for more than two-thirds of US economic activity — slowed to a 0.2% gain in April, down sharply from 0.7% in March. At the same time, personal income rose by a strong 0.8%, while the savings rate surged to 4.9%, the highest level since mid-2024.
The spending pullback appears tied to rising economic uncertainty. “People chilled out from binge buying goods out of fear of tariffs,” said Brian Jacobsen, chief economist at Annex Wealth Management. Durable goods prices rose 0.5%, but a shift toward services spending helped keep inflation in check.
Food prices fell 0.3% during the month, while energy prices rose 0.5%. Shelter costs — a stubborn component of inflation — climbed another 0.4%.
Tariff uncertainty clouds outlook
Economists warn that the latest inflation data may not fully capture the price pressures building from recent tariff hikes. Trump’s blanket 10% duties on all imports, announced in early April, are still working through supply chains. Although a 90-day suspension deal with trade partners later softened the blow, the long-term effects remain unclear.
“There’s a lot of confusion over the real status of this trade war,” said Peter Cardillo of Spartan Capital Securities. “These numbers are likely to take a backseat in the markets because of the shifting trade picture.”
Markets were relatively muted on the data. US stock futures pared early losses, while Treasury yields were mixed. The dollar edged lower against the yen.
Fed expected to hold rates steady
The mild inflation readings give the Federal Reserve room to remain on hold, particularly as officials monitor the impact of tariffs on both prices and growth. At their May meeting, Fed staff downgraded growth forecasts for 2025 and 2026, citing the risk of trade disruptions.
Despite calls from Trump to cut rates, the Fed reiterated after a face-to-face meeting with the president this week that monetary policy decisions remain independent and data-driven.
GDP outlook boosted by import plunge
Separate data showed a record plunge in goods imports — nearly 20% in April — as businesses paused shipments in response to higher tariffs. That drop sharply narrowed the trade deficit and could boost second-quarter GDP after a weak start to the year. The Atlanta Fed’s GDPNow model raised its Q2 growth forecast to 3.8%.
While inflation is currently tamed, economists warn that a delayed pass-through of tariff costs could drive prices higher later this year — possibly pushing core inflation toward 3–3.5%, according to Pantheon Macroeconomics.
For now, the Fed is likely to stay on the sidelines — watching, waiting, and hoping that trade volatility doesn’t tip the economy off course.
