Americans are tightening their wallets as looming tariffs and persistent inflation add uncertainty to the economy. New data from the Commerce Department released Friday shows that consumers are saving more, cutting back on discretionary spending, and increasing their purchases only slightly when adjusted for inflation.
Despite hopes for price relief, the Personal Consumption Expenditures (PCE) price index rose 2.5% in February compared to the previous year, holding steady from January. Core PCE, which excludes food and energy costs, ticked up to 2.8%, signaling that inflation remains stubbornly high.
Economists warn that President Donald Trump’s aggressive trade policies, including newly imposed tariffs on auto imports and additional levies on the horizon, could further weigh on consumer confidence and spending. “Trump 2.0 economic policies are frightening consumers as much as they do corporations,” said Chris Rupkey, chief economist at FwdBonds.
While incomes rose by 0.8% in February, consumers chose to save more, with the personal saving rate climbing to 4.6%. Spending patterns suggest that many rushed to buy goods before tariffs take effect, while cutting back on services like dining and travel.
Federal Reserve Chair Jerome Powell signaled last week that the central bank is in no rush to cut interest rates, as inflation remains well above the Fed’s 2% target. With economic uncertainty rising, experts caution that the full impact of tariffs has yet to be felt.
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