April PCE data reinforces “wait and see” stance for Fed

US markets showed muted reaction on Friday following the release of the Federal Reserve’s preferred inflation gauge, with analysts saying April’s Personal Consumption Expenditures (PCE) Index points to continued disinflation—though rising incomes and persistent trade policy uncertainty may complicate the Fed’s next move.

Core PCE prices rose just 0.1% on the month, in line with expectations, and the annual core inflation rate eased to 2.5% from a revised 2.7% in March. Meanwhile, personal income surged 0.8% in April, the largest monthly gain since January.

“This PCE report confirms continued disinflation, despite the refrain from everyone that disinflation isn’t possible in this environment,” said Jamie Cox, Managing Partner at Harris Financial Group. “As Alan Greenspan would have said, it’s a conundrum.”

Jeffrey Roach, Chief Economist at LPL Financial, described the report as “as good as it gets,” warning that inflation pressures are likely to pick up in the months ahead.

“Headline inflation decelerated in April to the lowest inflation print we will likely see for the rest of the year,” he said. “Inflation will likely reaccelerate for the remainder of 2025 as both supply and demand pressures will push annual inflation rates higher.”

Household resilience

The report also showed the savings rate rising to 4.9%, the highest level in a year, as real disposable personal income jumped 0.7% on the month—an encouraging sign for household resilience.

“The growth in real income is providing the necessary support for households uncertain about the current macro landscape,” Roach added. “As long as the job market remains stable, the Fed has the luxury of remaining in ‘wait and see’ mode.”

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said the data continues to support the Fed’s cautious stance. “We haven’t heard much from the Fed this year, and if the data continues like it has so far, then they are likely to stay in the background,” he said.

“This year has been all about tariff and trade policy and because there has been little in the way of inflation or unemployment surprises, the Fed has been able to stand aside and leave rates unchanged,” Zaccarelli noted.

However, he warned that prolonged uncertainty on tariffs could ultimately force the Fed’s hand. “If it takes too long to get clarity and the economy begins to stall, then the Fed will have no choice but to cut rates aggressively—so for those looking for rate cuts, be careful what you wish for.”

The Federal Reserve’s next policy meeting is scheduled for June 18-19, with futures markets still pricing in a modest chance of rate cuts later this year, depending on how inflation and labor market data evolve.