#USCorePCEMay 🇺🇸 US Core PCE Report – May 2025: Stubborn Inflation, Sluggish Demand

Key Summary:

The Personal Consumption Expenditures (PCE) Price Index rose by 0.1% MoM in May — identical to April. Year-over-year, core PCE increased to 2.3%, slightly up from 2.2% last month, indicating ongoing inflationary pressures.

Core PCE (Excluding Food & Energy):

Core PCE, the Fed's preferred measure of inflation, increased by 0.2% MoM, beating expectations and up 0.1% from April. Year-over-year, core inflation now stands at 2.7%, up from 2.6%, reinforcing concerns about persistent underlying inflation.

🔍 Why This Matters:

Fed's Dilemma: With core inflation stuck well above the Fed's 2% target, a rate cut in July seems unlikely. The current policy interest rate (4.25%–4.50%) may remain unchanged until at least September, unless inflation significantly eases.

Economic Signals: Personal income fell by 0.4%, and consumer spending declined by 0.1%, marking the first drop since January — signs of sluggish demand despite high prices.

Macro Complexity: The data presents a paradox: rising inflation on one side, weakening growth indicators on the other. This puts the Fed in a difficult position, forced to balance price stability with growth protection.

📊 Market Reaction: Despite mixed inflation data, equity markets surged higher. The S&P 500 and Nasdaq reached new highs, driven by dovish expectations for rate cuts later in the year. Meanwhile, Treasury yields fell, reflecting cautious optimism and increased demand for safe assets.