The year-over-year inflation rate rose to 2.4% in May, up from 2.3%, marking a shift from earlier expectations of a continued decrease. Economists had predicted the consumer price index would increase by 2.5% compared to a year ago.
Morgan Stanley had anticipated this new consumer price index would reflect “tariff-driven inflation,” as various reports indicated recent and forthcoming changes in pricing. The Federal Reserve’s Beige Book noted that all 12 Federal Reserve Districts observed upward pressure on costs and prices due to increased tariff rates.
President Donald Trump stated that the administration is “working to rapidly defeat inflation,” urging the Federal Reserve to reduce interest rates. The Federal Open Market Committee will convene next week to discuss potential rate adjustments, with market insights suggesting a high likelihood that rates will remain unchanged.
Jerome Powell, chair of the Federal Reserve, commented that sustained tariff increases could lead to rising inflation, slowed economic growth, and increased unemployment. He mentioned that the impact of tariffs on inflation could be temporary or more prolonged, contingent on the severity and duration of these tariffs.
Decisions regarding tariffs have already influenced business strategies and sales. Small business owner Michael Salvatore expressed concerns about the uncertainty surrounding tariffs, stating, “As a small business owner, uncertainty is just as damaging as the tariffs themselves.” He noted that unclear rules hinder effective long-term planning and purchasing decisions.
Despite uncertainty, some economic indicators remain robust, including stronger-than-expected job growth. Recent changes to trade agreements, such as a temporary pause on tariffs with China, may also be influencing the economic landscape.
The Federal Reserve Bank of New York’s Survey of Consumer Expectations indicated that inflation expectations have declined. The National Federation of Independent Business reported a slight improvement in optimism among small businesses in May, although uncertainty persists.
Bill Dunkelberg, chief economist at the NFIB, noted that business owners are increasingly positive about prospects for growth and sales despite ongoing uncertainties affecting the economy.