The Fed’s preferred measure of inflation is running hot, buoyed by tariffs

Inflation remained elevated in June, as new tariffs began to filter through more parts of the economy, according to data released Thursday by the Commerce Department.

Consumer prices rose 2.6% over the 12 months ending in June, according to the personal consumption expenditures price index, more than economists had expected. A “core” measure that strips out volatile food and energy prices also came in a bit hotter than forecast, rising 2.8%. Readings from April and May were also revised upward, a bit hotter than initially reported.

Consumer spending, another key indicator, also increased for the month, though growth came in a touch below analysts’ expectations.

Taken all together, the report show that Trump’s tariffs are beginning to leave more of an imprint on the economy, stoking inflation and weighing on consumer decisions to buy more, which is a big deal, as consumer spending fuels most of economic growth.

The news comes as even sharper tariffs are expected to take hold on Friday on a number of countries that haven’t come to new trade deals with the Trump administration, including Canada, a major trade partner, especially in the automobile sector.

Inflation remains firmly above the Fed’s long-standing 2% target, complicating calls by some officials – and by the president – to lower interest rates in hopes of spurring economic growth. The central bank left rates unchanged at the conclusion of its two-day policy meeting this week, marking the fifth straight hold.

Earlier this month, the government reported that another key inflation gauge – the consumer price index – also rose in June, driven in part by higher prices for imported goods like appliances, furniture and toys.

Fed Chair Jerome H. Powell said Wednesday that officials remain concerned that tariffs could further fuel inflation.

“A reasonable base case is that the effects on inflation could be short-lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed,” Powell said, explaining the cautious move on monetary policy.

Trump, meanwhile, renewed his public criticism of Powell on Thursday for not cutting rates – a sharp change from a week earlier, when the president praised the Fed chief following a visit to the central bank’s headquarters.

“He is TOO LATE, and actually, TOO ANGRY, TOO STUPID & TOO POLITICAL, to have the job of Fed chair,” the president wrote on social media.

Signs of strain are emerging in consumer spending. Recent data from the Bank of America Institute shows services-related spending – including for hotels and restaurants – has declined for three consecutive months, the first such drop since 2008. Credit card spending grew in June but less than cumulative declines the two prior months.

Consumers are scaling back on discretionary expenses such as travel and dining as costs on essential services such as insurance and rent continue to climb.

“If you were to say, ‘What is the temperature of the consumer right now?’ I would tell you that it’s cooling, but it’s not frozen. It’s not collapsing,” Liz Everett Krisberg, head of the Bank of America Institute, told reporters this week.

Fed Chair Jerome H. Powell offered little guidance Wednesday on what might trigger an interest-rate cut in the coming months, saying officials will wait for more data before deciding whether to move at their next meeting in September.

The central bank faces a delicate balancing act. On one hand, prolonged trade tensions could drag down economic growth and rattle financial markets – conditions that typically call for lower rates. On the other, new tariffs risk fueling inflation, which could push the Fed in the opposite direction. Some economists caution that inflation may take longer to materialize than signs of a cooling economy, adding another layer of complexity to the Fed’s decision-making.

Though the Fed held interest rates steady this week, officials were not united in the decision. Two members of the central bank’s board of governors dissented, signaling they would have preferred a rate cut – though not nearly as steep as the cuts President Donald Trump has called for.

Still, the split underscored growing debate within the Fed over how to respond to a murky economic outlook.