At a Glance

  • U.S. inflation picked up in June, according to data released Thursday by the Bureau of Economic Analysis, a day after Federal Reserve policymakers voted to hold their key interest rate steady with two dissents, rather than risk fueling higher prices through a rate cut.
  • The Personal Consumption Expenditures (PCE) price index rose 2.6% year over year in June, up from 2.4% in May, the bureau said. Core PCE, which excludes volatile food and energy prices and is the Fed's preferred gauge, rose 2.8% year over year, well above the central bank's 2% long-term inflation target.
  • "The Fed got vindicated this morning, with PCE coming in slightly hotter than expected," Scott Helfstein, head of investment strategy at Global X, said in a client note. "Healthcare, housing, and utilities remain key sources of inflation," he said.

Deep Dive

Gregory Daco, chief economist at EY-Parthenon, noted in a client report that tariffs implemented by the Trump administration this year prompted consumers to curb spending in June.

"There is ample evidence of tariff-induced consumer caution, with inflation-adjusted goods spending up just 0.07% and services spending up a meager 0.05%," Daco said, citing data released Thursday.

Economists argue that weak consumer spending highlights the risk to economic growth posed by the Fed's decision to hold off on rate cuts until the inflationary impact of import tariffs becomes clearer.

"Tariff-related cost increases, persistent policy uncertainty, reduced immigration, and elevated interest rates are expected to further weigh on employment, business investment, and household consumption," Daco said.

Uncertainty over trade and other federal policy changes slowed annualized economic growth to 1.2% in the first half of 2025, less than half the pace of last year.

Fed Chair Jerome Powell on Wednesday sought to dismiss the notion that monetary policy is dragging on economic growth, a claim made repeatedly in recent weeks by President Donald Trump. Policymakers have held the federal funds rate in a range of 4.25% to 4.5% for five consecutive meetings.

"The economy is not performing as if restrictive policy is holding it back," Powell said at a post-meeting press conference.

Trump intensified his criticism of the Fed again Thursday, lashing out at Powell on social media for not lowering borrowing costs.

"Jerome 'Too Late' Powell is at it again!!!" Trump wrote in a social media post. "He is too late, and actually too angry, too stupid, and too political to be Chairman of the Fed."

Trump said Powell is "costing our Country TRILLIONS OF DOLLARS" and reiterated his view that lowering the federal funds rate would reduce interest payments on the nation's rising federal debt.

Treasury Secretary Scott Bessent said Thursday that Trump will announce Powell's successor by the end of 2025, with Powell's term as Fed chair expiring in May.

"We are putting together a very good list of candidates," Bessent said, adding that it would break with tradition if Powell remained on the Fed's policymaking body before his term as governor ends in 2028. Bessent said in a CNBC interview that it would be "highly unusual" for the chair to stay on.