Core PCE Inflation Hits 3.4% in May, Highest Since Oct 2023
The Fed's preferred inflation gauge came in at 3.4% core PCE in May, topping levels not seen since October 2023.
The Fed's favorite inflation thermometer just flashed a warning sign. Core personal consumption expenditures — the metric the Federal Reserve watches more closely than anything else — clocked in at 3.4% annually in May, the hottest reading since October 2023. That's not the direction Powell and company want to see.
Here's what makes this number sting: analysts had penciled in a 4.1% annual increase for the headline PCE figure, meaning the inflation picture remains stubbornly elevated even if it came in below that forecast. When core inflation stays this sticky, rate-cut bets get repriced fast. Traders, take note.
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For everyday investors, a 3.4% core PCE reading keeps the pressure on the Fed to hold rates higher for longer. That math is brutal for rate-sensitive assets — think long-duration bonds, high-multiple growth stocks, and anything priced on cheap money assumptions. The "imminent pivot" narrative just got harder to sell.
The October 2023 comparison matters because that was a period when markets were also repricing rate expectations aggressively. History doesn't repeat, but it rhymes — and right now it's rhyming loudly. Watch for Fed speakers to use this print as cover for keeping policy restrictive through the summer months.
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