Dive Brief:

• Inflation picked up in June, the Bureau of Economic Analysis said Thursday, a day after Federal Reserve policymakers decided, in a vote with two dissents, to hold the main interest rate steady rather than risk pushing up prices with a rate cut.
• The personal consumption expenditures price index rose at an annual 2.6% rate in June compared with 2.4% in May, the bureau said. Core PCE, a measure excluding volatile food and energy prices and preferred by the Fed, increased at a 2.8% annual rate, well above the central bank’s long-term inflation goal of 2%. 
• “The Fed got validation this morning with PCE coming in a little higher than expected,” Scott Helfstein, head of investment strategy at Global X, said in a client note. “Healthcare, housing and utilities continue to be key sources in driving inflation,” he said.

Dive Insight:

Tariffs set this year by the Trump administration prompted consumers to limit spending in June, EY-Parthenon Chief Economist Gregory Daco said in a client note.

“There was ample evidence of tariff-induced consumer caution with inflation adjusted spending on goods up only 0.07% and spending on services up a meager 0.05%,” Daco said, citing data released Thursday.

Weak consumption highlights the risks to economic growth from the Fed’s decision to forgo a reduction in borrowing costs until the inflationary impact of import duties is clear, according to economists.

“The combination of tariff-related cost increases, persistent policy uncertainty, curtailed immigration and elevated interest rates is expected to further weigh on employment, business investment and household consumption,” Daco said.

Uncertainty over shifts to trade and other federal policies slowed economic growth to an annual rate of 1.2% during the first six months of 2025, or less than half the pace of last year.

Fed Chair Jerome Powell on Wednesday sought to dispel the notion that monetary policy is weighing on growth, an assertion made in the past several weeks by President Donald Trump. Policymakers have held the federal funds rate at a range between 4.25% and 4.5% for five consecutive meetings.

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

Trump redoubled his criticism of the Fed on Thursday, lashing out at Powell for not reducing borrowing costs.

“Jerome ‘Too Late’ Powell has done it again!!!” Trump said in a social media post. “He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair.”

Powell "is costing our Country TRILLIONS OF DOLLARS,” Trump said, reiterating his assertion that a reduction in the federal funds rate would trim interest payments on spiraling federal debt.

Trump by the end of 2025 will be able to announce a replacement for Powell, whose term as Fed chair expires in May, Treasury Secretary Scott Bessent said Thursday.

“We are putting together a very good list of candidates,” Bessent said, adding that Powell would break with tradition if he remains on the Fed’s policymaking body until his tenure as a governor expires in 2028. It would be “highly unusual for a chair to stay on,” Bessent said in a CNBC interview.