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A cooler inflation reading from the month when President Trump's tariffs went full blast likely won't shake the Federal Reserve's stance of holding interest rates steady, with policymakers still seeing a risk that duties push prices higher as the year progresses.
"We'll have to wait until next month to get a real sense of how tariffs are affecting the economy," Morgan Stanley Wealth Management chief economic strategist Ellen Zentner said. "The question isn't whether tariffs will have an impact, it's a question of how big that impact will be."
The "core" Personal Consumption Expenditures (PCE) index — which strips out food and energy costs and is closely watched by the central bank — rose 2.5% on an annual basis in April. The Fed's goal is to get this number down to 2%.
The new reading was in line with expectations and cooler than the 2.7% annualized change recorded in March. Core prices also rose 0.1% in April from the prior month, in line with expectations for a 0.1% increase and the monthly increase seen in March.
Jeffrey Roach, chief economist for LPL Financial, said Friday's inflation print is "as good as it gets," as he expects prices to reaccelerate in the coming months.
"Headline inflation decelerated in April to the lowest inflation print we will likely see for the rest of the year," Roach added.
The central bank is debating internally about whether any inflation from tariffs will prove to be a one-time increase or longer-lasting.
The White House has argued that the Fed should view any price increases as a one-time event, with Trump himself repeatedly calling for the Fed to lower rates, but many Fed officials have made it clear they are not sure which way things will go.
President Trump told Fed Chair Jerome Powell Thursday during a meeting at the president's invitation that he is making a mistake by not lowering rates, echoing his calls all year for the Fed to cut rates.
The Fed said in a statement that Powell "did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook."
Read more: How much control does the president have over the Fed and interest rates?
Dallas Fed president Lorie Logan sent a strong veiled message Thursday night about holding rates steady in the face of President Trump's calls to lower rates.
Logan said rates are in a "good place" now and that it could take "quite some time to know whether the balance of risks is shifting in one direction or another."
