US consumer spending falls; tariff related boost to inflation awaited

US consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of the Trump administration’s tariffs faded, while monthly inflation maintained a moderate pace of increase.

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The Commerce Department's report likely will have no impact on near-term monetary policy as Federal Reserve Chair Jerome Powell told lawmakers this week that the US central bank needed more time to gauge the impact of the import duties on prices before considering a resumption of interest rate cuts. Business surveys have suggested tariffs could start driving up prices this summer, a sentiment shared by Powell and most economists. President Donald Trump's sweeping tariffs, which have led businesses and households to front-run imports and goods purchases to avoid higher prices from duties, have muddled the economic picture, and the spending report offers no clarity.

“The report is a wash for the Fed and won't alter its wait-and-see stance,” said Sal Guatieri, a senior economist at BMO Capital Markets. “The pullback in spending in May partly reflects payback from earlier tariff front-running, while the slightly warmer core price increase doesn't settle the debate about how much tariffs will impact inflation.” Consumer spending, which accounts for more than two-thirds of economic activity,