Fed to Take Another Month of Tame Inflation

The Federal Reserve is likely reassured that recent tariffs haven’t yet had a major effect on official inflation figures, but policymakers are maintaining a cautious stance. They’re signaling that interest rates will remain steady until there’s more clarity about how U.S. trade policy will affect the economy.

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According to a survey, data set to be released Friday will probably show a modest 0.1% rise in the personal consumption expenditures (PCE) price index excluding food and energy for April. This index, the Fed’s preferred measure of underlying inflation, was flat in March.

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Economists expect that while the immediate impact of former President Donald Trump’s tariffs was limited in April, their influence on prices may become more pronounced starting next month. With the labor market still appearing stable, Fed officials are in no rush to alter interest rates. They plan to monitor incoming data to better understand how trade developments play out economically.

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Minutes from the Fed’s most recent meeting, which will be released on Wednesday, may provide further insight into this wait-and-see approach. Speeches from regional Fed presidents such as Neel Kashkari and John Williams may echo that sentiment. Fed Chair Jerome Powell will also deliver remarks at Princeton University over the weekend.

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Meanwhile, analysts anticipate that U.S. economic growth will slow during the remainder of the year. Many companies are becoming more cautious, especially as tariffs raise input costs and dampen consumer confidence.

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In addition to inflation data, the government will also report on consumer spending. Economists expect spending on goods and services to have increased 0.2% in April, down from a 0.7% jump in March. This more subdued pace points to rising consumer concerns over financial stability and employment prospects.

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Other key economic releases during this shortened holiday week include a second estimate of first-quarter gross domestic product (GDP), April durable goods orders, and two separate surveys on consumer sentiment.

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In Canada, growth is also expected to come in lower than forecast. Industry data suggests the economy expanded at a 1.5% annualized rate in the first quarter, short of the Bank of Canada’s 1.8% projection. In a symbolic ceremony, King Charles III will deliver a speech Tuesday outlining Prime Minister Mark Carney’s priorities, which may provide more detail on upcoming fiscal plans.

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Turning to Asia, a number of important data releases and central bank decisions are on the docket. Trade data from Hong Kong, Sri Lanka, Thailand, and the Philippines will shed light on how global trade tensions are affecting the region. Meanwhile, China is scheduled to report April industrial profits, which are expected to be under pressure due to falling prices and trade-related headwinds.

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India’s industrial production data is expected to show a slowdown, while South Korea and Japan are likely to report weaker output for April. Japan’s industrial activity could even contract, reflecting reduced demand. Central banks in both South Korea and New Zealand are predicted to lower their benchmark interest rates by 0.25 percentage points to support flagging growth.

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In addition, South Korea will release retail sales and consumer confidence data, while Japan’s upcoming reports will cover a wide range of indicators including producer prices, Tokyo’s consumer prices, the jobless rate, and retail activity. India’s GDP report for the first quarter is expected to show an acceleration in growth, while Australia will publish updates on inflation and retail sales.

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Elsewhere, Macau will release its latest hotel occupancy data on Thursday, offering insights into tourism trends from mainland China.

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In Europe, a shorter workweek due to holidays in the U.K. and parts of northern Europe won’t stop an important stretch of economic developments. With the European Central Bank expected to lower interest rates in June, Thursday will initiate a blackout period preventing officials from making public comments. Until then, speeches from ECB President Christine Lagarde and central bank governors in France and Germany may offer clues about policy direction.

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Inflation data from France, Germany, Spain, and Italy will be closely watched. France’s annual inflation is projected to remain at 0.9%, while the other three countries could report rates of 1.9% to 2%. If those forecasts are accurate, May would be the first time in eight months — and only the second since 2021 — that inflation across these key euro area economies falls below the ECB’s 2% target.

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In the U.K., a quieter data week puts the spotlight on speeches by Bank of England officials including Chief Economist Huw Pill and Governor Andrew Bailey. Meanwhile, Switzerland will publish export figures for April, Sweden will report economic sentiment and GDP, and Turkey is expected to show subdued growth in the first quarter due to continued high interest rates.

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Across Latin America, Brazil will release its mid-month inflation reading on Tuesday, one of the last before the central bank’s June meeting. Rising food prices are expected to push headline inflation higher. Mexico’s central bank will publish its quarterly inflation report and the minutes from its latest meeting, which may reveal a downward revision in its 2025 GDP forecast.

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April labor market reports are also due from Brazil, Chile, Colombia, and Mexico. Jobless rates are trending higher in Brazil and Chile but remain historically low in Mexico. Brazil’s first-quarter GDP figures are set for release Friday, with forecasts suggesting slower growth ahead despite strong recent performance. The GDP Monitor from the Getulio Vargas Foundation estimated 1.6% quarter-on-quarter growth in Q1, the fastest since 2020.

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