Overview
- The Bureau of Economic Analysis reported Thursday that headline PCE rose 4.1% year‑over‑year in May while core PCE, which strips out food and energy, rose 3.4%, the highest core reading since October 2023.
- The Fed held its policy rate at 3.50%–3.75% at its June meeting but new Chair Kevin Warsh stressed a return to a 2% goal and set up reviews of how the Fed measures inflation, leaving policy choices data dependent.
- A large part of the May increase reflected a surge in energy and gasoline tied to the U.S.-Iran conflict, but recent diplomatic progress and falling crude prices have begun to ease that pressure and make persistence uncertain.
- Markets moved quickly: traders raised odds of at least one or more rate hikes this year, the S&P 500 ticked lower on the news, and short‑term Treasury yields shifted as investors reprice the Fed path.
- Consumers kept spending and income rising in May, both up 0.7%, but savings have been squeezed and real purchasing power is under strain, which makes next month’s data and oil moves the key tests for whether inflation cools.