Friday brought fresh data on the Fed’s favorite tool for monetary policy decisions — the PCE index, showing a 0.26% month-over-month and 2.74% year-over-year (previously 0.16% m/m and 2.60% y/y) rise in August. Expectations were 0.3% m/m and 2.7% y/y. The S&P 500 and Dow Jones jumped slightly, and the DXY pulled back.

The figure was lower than expected, so why worry?

These forecasts had already been set at the upper end, so there is not much reason for real optimism. It is also worth remembering that the Fed’s target is 2%, but instead of getting closer, the U.S. seems to be moving in the opposite direction so far. And it is not just about a stronger economy, but mostly trade wars.

And those, for now, are only getting hotter. For example, it was announced last week that, starting this Wednesday, the U.S. will impose 100% tariffs on branded pharmaceuticals, 25% on trucks, and up to 50% on furniture. Strikingly, investors don’t seem particularly concerned, and markets keep climbing.

What does the Fed say?

In his speech last week, Powell noted that tariffs are more likely to have a one-off effect on prices than to fuel long-term core inflation. At the same time, he acknowledged that the Fed faces a “difficult situation” in deciding how much and how quickly to cut interest rates, given the risk of renewed inflation.

This concern appears to be shared by the entire FOMC. The president of the Kansas City Fed said monetary policy was “on the right track,” while his counterpart in Chicago warned of the risks of cutting too quickly, and St. Louis pointed out that further easing could make policy overly accommodative.

Still, dissenting voices remain — and interestingly, they are all Trump appointees. Stephen Miran, for instance, is calling for two more half-point cuts before year-end. Michelle Bowman, the Fed’s current vice chair for supervision and a potential future chair candidate, has also taken a more dovish stance.

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