The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, is projected to rise by just 0.1% in April. If that small monthly increase holds, it would push the annual PCE inflation rate down toward 2.2%, nearing the levels seen before the pandemic.
At first glance, that outlook is encouraging: lower readings on the Fed’s favored measure would bring policymakers closer to their long-stated goal of 2% inflation or below. A sustained return to that range would reduce pressure on interest rates and support a more stable economic backdrop for consumers and businesses.
Still, risks remain. New or higher tariffs could lift import prices and feed through to consumer costs, complicating the Fed’s path back to stable inflation. Economists also watch closely for signs that inflation expectations—how businesses and households expect prices to behave in the future—might be drifting upward. If expectations become “unanchored,” it can make inflation harder to control and force central bankers to act more aggressively.
Recently, a court decision curbing former President Trump’s blanket tariff authority brought some relief to markets and policymakers, since broad tariff moves can be a quick channel for imported price pressures. However, experts caution that isolated legal wins do not eliminate the risk of rising import costs from other sources, such as targeted trade measures or supply-chain disruptions.
Historical comparisons highlight the stakes. The 1970s and early 1980s saw repeated inflationary episodes driven in part by rising commodity and import prices, which created a self-reinforcing cycle of higher wages and prices. While current conditions differ in many respects—labor markets, monetary frameworks, and fiscal policy are not the same—the possibility that import-price shocks could rekindle persistent inflationary dynamics remains a concern for forecasters.
In sum, a weak April PCE reading would be welcome news for the Federal Reserve and the broader economy, suggesting inflation may be trending back toward target. But the outlook is not risk-free: tariff policy, import-price volatility, and shifts in inflation expectations could still complicate the return to a stable, low-inflation environment.