Fed’s core – The Fed’s preferred inflation gauge showed core PCE inflation rising at a 3.4% annual rate in May, the highest since October 2023. The broader PCE measure also accelerated, while consumer spending and income beat expectations as new data landed just over a wee
May’s inflation print landed with the kind of timing that makes markets hold their breath.
The Federal Reserve’s preferred measure. the personal consumption expenditures price index excluding food and energy. rose to an annual core rate of 3.4%—its highest level since October 2023. It followed a monthly increase of 0.3% for May, and both the monthly and annual readings matched the Dow Jones consensus.
The all-items picture pushed higher as well. The PCE index showed inflation running at a seasonally adjusted 4.1% annual rate, the highest since April 2023. On a monthly basis, PCE accelerated 0.4%. The annual level was in line with the Dow Jones consensus estimate. but the monthly reading came in 0.1 percentage point below the consensus.
For the Fed. the numbers arrive during a moment when leaders have been signaling they will not treat inflation as a one-off problem. Fed officials look at both headline and core rates. and they generally consider core inflation the better signal for longer-run trends—especially after this year’s inflation surge that was driven largely by an acceleration in energy prices tied to the Iran war. which has slowly begun to seep into other parts of the economy.
Even so, the report did not match the grim expectations many attach to higher inflation. Consumer spending strengthened. Personal consumption expenditures rose 0.7% for the month, 0.1 percentage point above the forecast and ahead of the inflation rate. Personal income also rose 0.7%, well above the 0.4% forecast. The personal saving rate climbed to 3%.
That mix—strong spending. but hotter core prices—lands just more than a week after the Fed and new Chairman Kevin Warsh delivered what markets broadly viewed as tough talk on rates and inflation. Warsh stressed the importance of price stability. In its post-meeting statement. the Federal Open Market Committee adopted language described as unequivocal. saying it would “deliver price stability” after missing its 2% inflation target for five years running. Officials also removed a previously indicated rate cut for this year and indicated a likelihood of a hike.
The Fed’s internal debate has been audible even when policy statements sound firm. The inflation story is complicated by the question of whether price spikes are still being driven by supply shocks or whether they are spreading more widely. Fed officials generally try to look through supply-driven surges like those tied to the energy jump. but concerns are rising that price increases are becoming more widespread—and are being fed by tariffs. At the April meeting. multiple Fed officials dissented because the statement included “forward guidance” that pointed toward further cuts. and that language was removed from last week’s statement.
The wider economic readout released Thursday reinforced a sense that the economy is not in immediate free fall. Gross domestic product rose at a seasonally adjusted annualized pace of 2.1% in the first quarter. according to the last of three readings. That was up from the prior indication of 1.6% and better than the forecast for 1.7%. The Commerce Department said the change largely reflected a downward revision to imports, which subtract from GDP.
Labor market data also leaned positive. Initial jobless claims fell to 215,000 for the week ending June 20, down 12,000 from the prior reading and below the estimate for 223,000.
Taken together. the sequence is clear: core inflation is running hotter at levels not seen since October 2023. while household spending and income are still climbing. and other economic gauges show the economy holding up. For the Fed. that combination puts pressure on the central question it has been confronting since its most recent shift in tone—whether the inflation it can’t ignore is still mostly contained. or whether it’s starting to broaden out for good.
Fed Federal Reserve PCE core inflation personal consumption expenditures Kevin Warsh inflation energy prices Iran war tariffs GDP jobless claims June 20 May inflation
3.4% again? So much for “cooling” inflation I guess.
Is this why everything is still expensive? They say core excludes food and energy but my groceries are literally ruining me.
Core inflation jumping is proof the Fed is just guessing… like if spending beat expectations then rates should go up automatically, right? Also Iran war energy seeping in sounds like a news headline excuse.
Wait so monthly PCE is 0.4% and annual is 4.1%?? But it says monthly was below consensus by 0.1 so is that good or bad lol. I can’t tell what they want us to panic about. My paycheck doesn’t care what index they call it, it’s still not going far.