PCE inflation cooled to 2.1% in April, the lowest it’s been in eight months, even though President Donald Trump fired off new tariffs earlier in the month.
That’s what the Commerce Department confirmed on Friday. Monthly inflation only climbed by 0.1%, which matched the Dow Jones estimate, while the yearly number slid slightly below expectations by 0.1 percentage point.
The core PCE reading, which cuts out food and energy costs, also came in at 0.1% for the month and 2.5% year-over-year. That’s below the Federal Reserve’s target range and 0.1% less than forecasted.
These numbers carry weight because the PCE index is the Fed’s main inflation tracker, and it guides what they do with interest rates. Right now, the market is stuck wondering what the central bank does next—hike, pause, or start cutting.
PCE drops to struggling markets as Trump reignites tariff fight with China
Consumer spending slowed way down in April, rising just 0.2%, which was expected but weaker than March’s 0.7% increase. At the same time, personal income went up by 0.8%, blowing past the 0.3% estimate and beating the previous month’s number. This means people earned more but didn’t spend much of it.
That has yet to calm Wall Street. Stocks took a dive Friday morning after Trump posted on social media that “China violated” their current trade agreement. That statement came not long after Treasury Secretary Bessent told Fox News that the talks between Washington and Beijing were “a bit stalled.”
The fallout hit futures hard. Dow Jones futures dropped by 174 points (0.4%), while both the S&P 500 and Nasdaq-100 futures sank by 0.6%. The White House’s aggressive tariff strategy is still up in the air legally. The Court of International Trade shut most of it down on Wednesday night, but an appeals court jumped in on Thursday to keep the tariffs active until next week.
Behind the scenes, Trump’s team is considering another move: using a piece of the Trade Act of 1974 to slap on up to 15% tariffs for 150 days, according to The Wall Street Journal. No guarantees, but that plan is now on the table.
The back-and-forth on trade and legal threats has rattled investors for months. They’ve been warning that prolonged uncertainty could send the US economy into a slowdown. And with the Fed now seeing cooling inflation, slower spending, and choppy trade dynamics, there’s no clear answer on what their next move should be.
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