First Inflation Report Under New Fed Chief Shows Prices Jumped Even Higher - What to Know

The newest inflation report is out, and it might impact how you think about your retirement plan. The Personal Consumption Expenditures (PCE) Index, the Federal Reserve's preferred way of monitoring inflation, was released on May 28. It indicates inflation rose to 3.8% year-over-year in April, and inflation has risen from 3.5% in March.

Here's what to know about inflation, the possibility of a Fed rate increase, and how it might impact your spending, budgeting, and retirement.

The latest inflation report

The Fed's goal is typically to have inflation at around 2%, so the newest inflation report means it's unlikely that the Fed is going to lower interest rates. In fact, the 3.8% April inflation rate is the highest inflation rate since 2023. The core-PCE rose 3.3% in April on an annual basis. It excludes food and gasoline prices, which could be highly volatile.

This is the first inflation report under the new Federal Reserve chair Kevin Warsh. The numbers aren't encouraging. Energy costs saw the greatest increase in April, likely driven up by the war with Iran. Gasoline costs increased by 5.5% during the month, and housing costs experienced the largest monthly increase since January 2025.

What the inflation report says about income and spending

The inflation report also revealed concerning information about consumer spending and income. Consumer spending increased by 0.5% in April, but income remained flat, suggesting that households may be experiencing the financial strain of coping with increasing costs while income is stagnant. This type of survival is only sustainable for so long, especially for households with limited income and savings who already live on tight budgets.

Data on personal savings rates also suggests that households may be struggling. In April, the personal savings rate declined to 2.6%, compared to 3.6% in March. That decline suggests that some households may be relying on their savings to cover higher living costs. If you've had to dip into your savings or find you no longer have money left at the end of the month to save, chances are you're not alone.

The loss of purchasing power

The sharp increase in inflation also means households may be losing their purchasing power. The report revealed that annual personal income growth dropped to 2.5%, which is lower than the pace of inflation. Since incomes aren't keeping up with the increasing prices, households are losing their purchasing power.

The decision Warsh faces

Trump appointed Warsh as Federal Reserve chair, and Trump has been outspoken about the fact that he wants the Fed to lower the interest rate. However, when Warsh became chair, the Fed was debating whether to raise interest rates. When inflation gets too high, the Fed usually raises interest rates to help slow down the economy and reduce inflation. When inflation is low, the Fed may lower interest rates to help stimulate the economy.

Now, Warsh faces the dilemma of whether to do nothing, lower interest rates as Trump wishes, which might worsen inflation, or raise interest rates in an attempt to control inflation.

The likelihood of a rate cut 

Three members of Wash's committee were discussing raising rates during the April meeting. Plus, since the Fed tries to keep inflation at around 2%, it's increasingly unlikely that an interest rate cut is going to occur this year. Instead, traders are predicting that the Fed may increase interest rates by 25 basis points during the December meeting in an attempt to rein in inflation.

What inflation means for day-to-day life

According to the inflation report data, more households are struggling to cope with the financial implications of inflation. Prices are rising, especially when it comes to transportation and energy, but housing and utilities, recreation services, and food services also saw significant increases during April.

Since it's unlikely that the Fed is going to lower interest rates, interest rates on products like mortgages, auto loans, and personal loans are unlikely to significantly change. If you've been holding out on a big purchase because you're hoping for a lower interest rate, that's unlikely to happen in the near future.

How inflation is affecting your savings

If you have your money in a savings account with a low interest rate, your money could actually be losing its value because of the high inflation rate. April's inflation rate was 3.8%, so if your savings account pays less than 3.8% in interest, your money is losing value.

This may be a good time to shop around for a high-yield savings account offering an interest rate that's higher than the current inflation rate. Several high-yield savings accounts offer interest rates from 4 to 5%, which may help to maximize your money's value while still giving you easy access to your cash when you need it.

Bottom line

As inflation continues to increase, consider carefully reviewing your budget, knowing that you're likely to see higher costs continue for some time. You may wish to cut back on discretionary spending or work to pay down any variable-rate debt, since interest rate relief appears to be unlikely in the near term.

Boosting your savings, if possible, or taking on some side work to bring in extra income may help eliminate some money stress as the country navigates this challenging time.

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