Core PCE Inflation Hits 3.4% in May, Highest Since Oct 2023
The Fed's preferred inflation gauge rose to 3.4% in May, marking the steepest reading since October 2023 and complicating rate-cut expectations.
The Federal Reserve's preferred inflation measure surged to its highest level in more than a year, with the core personal consumption expenditures price index climbing to 3.4% annually in May — the steepest reading since October 2023, according to fresh data released Friday.
The May figure came in below the 4.1% annual increase that economists had broadly anticipated, offering a partial reprieve for policymakers who have been wrestling with persistently elevated price pressures since the post-pandemic inflation spike. Even so, the reading remains well above the Fed's 2% target, keeping the central bank under pressure to maintain its restrictive monetary policy stance.
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The core PCE index, which strips out volatile food and energy prices, is the inflation metric Fed officials explicitly watch when calibrating interest rate decisions. A sustained move higher in this gauge could push back the timeline for any anticipated rate cuts, with markets already recalibrating their expectations for easing in the second half of 2025.
The data lands at a critical moment for the U.S. economy, as consumers and businesses alike are grappling with the cumulative weight of elevated borrowing costs. Fed Chair Jerome Powell and other officials have repeatedly stressed that they need to see convincing, sustained progress toward the 2% inflation goal before pivoting to rate reductions. May's acceleration in core PCE does little to accelerate that pivot.
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