A key inflation measure closely watched by the Federal Reserve rose to its highest level since May 2023, underscoring the ongoing challenge of rising prices for the economy.
The personal consumption expenditures price index climbed 3.8% year-over-year in April, the Commerce Department reported. That reading, nearly in line with forecasts, marks an increase from 3.5% in March and from 2.9% in February. Core PCE, which strips out volatile food and energy costs, rose 3.3% annually-still well above the Fed's 2% target.
This inflation data comes just after Kevin Warsh was sworn in as Fed chair. The central bank has held its benchmark interest rate steady at a range of 3.5% to 3.75% so far this year, following three rate cuts in 2025.
Forecasters expect policymakers to maintain that rate at their June meeting, though some now anticipate a potential rate hike later this year or in early 2027.
Meanwhile, the Commerce Department revised down its first-quarter GDP estimate to 1.6% annual growth, down 0.4 percentage points from its initial reading. The Labor Department reported employers added 115,000 jobs in April and 185,000 in March, gains concentrated largely in health care and a few other sectors.
Analysts downplayed immediate stagflation fears but noted the combination of rising inflation and slowing growth is unwelcome. "The market has already shifted expectations on interest rates 180 degrees this year, from cuts to hikes," said Scott Helfstein of Global X ETFs. "This inflation report should be baked into asset prices."