Overview
- The Commerce Department reported on June 25 that the Personal Consumption Expenditures index rose 4.1% year‑over‑year in May while core PCE, which excludes food and energy, climbed to 3.4%, the highest core reading since October 2023.
- Much of the headline move reflects a sharp surge in oil and gasoline tied to the conflict with Iran, which pushed energy costs dramatically higher in May before prices began to retreat after preliminary peace developments.
- Consumer demand remained strong as personal consumption expenditures rose 0.7% in May and the Commerce Department revised first‑quarter GDP up to 2.1%, a mix that complicates the Fed’s choice between supporting growth and cutting inflation.
- New Fed Chair Kevin Warsh has emphasized returning inflation to a 2% goal and the Federal Open Market Committee kept the policy rate at 3.50%–3.75% last week while signaling that further tightening is possible if inflation persists.
- Markets and many economists now price at least one to two rate hikes later this year if upcoming data do not show cooling, and the path of inflation will depend on whether falling oil prices cut headline inflation or whether core pressures keep broad price growth elevated.