The US core personal consumption expenditures (PCE) price index rose to an annual rate of 3.4% in May, marking the highest level of underlying inflation since October 2023.
The acceleration in the Federal Reserve’s preferred inflation gauge signals that price pressures remain entrenched, particularly in services sectors, despite earlier signs of cooling in the broader economy.
The hotter-than-expected print has immediate implications for Treasury markets and Fed policy expectations.
Investors are likely to reassess the timing of potential rate cuts, with the data suggesting the central bank may need to maintain a restrictive stance for longer than previously anticipated.
The rise in core PCE undermines the narrative of a smooth disinflation trajectory, adding volatility to rate-sensitive assets.
This development comes amid a broader backdrop of persistent inflationary pressures.