‘Most expensive summer’ follows holiday with near-record gas prices
Memorial Day marks the beginning of an expensive summer, with soaring gas prices and a 3.8% inflation rate. The average in Ohio is $4.76 per gallon and $4.56 nationally.
The first inflation report released since Kevin Warsh became Federal Reserve chairman confirmed what most Americans already know: costs are still rising and rising prices may be the central bank’s biggest challenge.
The Commerce Department announced on May 28 that the personal consumption expenditure price index, an inflation indicator that the Federal Reserve focuses on, rose 3.8% in April compared to the same month last year. The measure is broadly in line with forecasters’ expectations and represents the highest annual increase since May 2023.
That’s up from 3.5% in March and 2.9% in February, before the start of the Iran war, resulting in supply chain disruptions that have led to higher prices for some goods and soaring gasoline prices.
The department estimates that “core” PCE, which excludes volatile food and energy prices, rose 3.3% in April from a year earlier, still well above the Fed’s 2% target.
Why is this inflation measure important to the Fed?
The Fed typically raises its benchmark interest rate to try to control inflation by making borrowing costs higher, and lowers it to stimulate economic growth and employment. Concerns about a sluggish job market led policymakers to cut interest rates three times last year, but 2026 has so far remained on the sidelines.
As a candidate, Mr. Warsh appeared to support lowering borrowing costs, but the former Fed chief returned to the central bank at a time when the U.S. job market is growing. The Labor Department estimates that employers added 115,000 jobs in April, with an upward revision of 185,000 jobs in March. Although many of these increases are concentrated in a few select sectors, such as health care, these two reports sparked cautious optimism that employment will rebound in 2026.
At the same time, on May 28, the Department of Commerce also revised downward its initial forecast for the economic growth rate for the first quarter of 2026. The department forecast that U.S. gross domestic product (GDP) grew 1.6% quarter-over-quarter, a rate 0.4% lower than last month’s prior forecast.
“We are far from stagflation, but higher inflation and slower growth are the opposite of what we want on both fronts,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in an op-ed for USA Today.
Forecasters expect policymakers to keep rates in the range of 3.5% to 3.75% at their next meeting in mid-June, but are starting to factor in the possibility of a rate hike later this year or early 2027.
“Reports of higher inflation are not surprising,” Scott Helfstein, head of investment strategy at Global XETF, said in a separate note to USA Today. “The market has already made a 180-degree turn from lowering to raising interest rate expectations this year, so this inflation report should be factored into asset prices. This is good news. Investors can now focus on fundamentals and the real economy rather than trying to be fooled by Fed moves.”
Contact Rachel Barber at rbarber@usatoday.com, follow her at X @rachelbarber_ and subscribe to her newsletter Making More of Your Money here.
