Inflation in April rose to 3.8% year-over-year, up from 3.5% in March, according to the Personal Consumption Expenditures (PCE) Index, released May 28, which is the Federal Reserve’s preferred gauge of inflation. That likely puts a damper on the Fed lowering interest rates, as their stated goal has always been to have inflation around 2%.
A low, stable 2% inflation rate allows consumers and businesses to make sound decisions about saving and investing, according to the Fed. It is considered high enough to safely avoid the severe economic risks of deflation (falling prices), while being low enough to maintain the purchasing power of the dollar.
Personal income decreased less than $0.1 billion (less than 0.1% at a monthly rate) in April, while disposable personal income—personal income less personal current taxes—decreased $19.9 billion (0.1%), and personal consumption expenditures increased $111.1 billion (0.5%).
Those numbers mean households are losing purchasing power because their incomes aren’t keeping up with rising prices.
The report is the first for new Federal Reserve leader Kevin Warsh. Earlier this year, the central bank had predicted there would be one interest rate cut this year, but that is now seen as unlikely due to the price of oil rising as the issues with Iran have not ended.
“Cutting interest rates is not possible with the current state of inflation and the ongoing war,” he said recently. “Addressing the current inflation may necessitate raising interest rates.”
