The Fed’s preferred inflation index, PCE, rose 2.7% in August, slightly higher than 2.6% in July and the highest since February. Core inflation, which excludes food and energy, remained at 2.9%, in line with expectations.
While inflation has eased since its peak in 2022–2023 after the Fed raised rates 11 times, the annual rate remains above its 2% target. Last week, the Fed cut rates for the first time this year to support a weak job market.
However, the central bank remains cautious about making more cuts, worried about the impact of President Trump’s massive import tariffs on inflation and the overall economy. Trump has repeatedly called for the Fed to act more aggressively, even criticizing Chairman Jerome Powell with a sarcastic epithet.
Political tensions have also risen as Trump sought to fire Fed board member Lisa Cook, a move that is now being challenged in the Supreme Court. At the same time, the Fed maintains its preference for the PCE index over the CPI because it more accurately captures changes in consumer spending patterns during times of high inflation.
