WASHINGTON, June 25, 2026, 09:17 EDT
- PCE prices climbed 4.1% year over year in May, topping 4% for the first time since April 2023.
- Consumer spending in current dollars increased 0.7%, while real spending went up 0.3%. The savings rate held at 3.0%.
- U.S. cash equities were still pre-open. Rate futures lowered July hike odds, but September stayed close to 80%.
U.S. consumers paid more in May, but higher prices drove most of the increase rather than people buying more. That has equity investors watching demand as they try to gauge whether earnings will hold up with inflation rising again.
Commerce reported personal income climbed $181.6 billion, or 0.7%, in May. Disposable income was up $164.9 billion, and spending gained $156.1 billion, also a 0.7% rise. Real personal consumption expenditures, which strip out inflation, increased $43.8 billion, or 0.3%. Saving rate hit 3.0%. The PCE price index posted a 0.4% gain in May and 4.1% over the year. Core PCE, which excludes food and energy, was up 0.3% for the month and 3.4% on the year.
Annual headline inflation came in at its highest since April 2023, matching the 4.1% rate economists in the Reuters poll had forecast. The 3.8% annual PCE increase from April was unrevised.
For investors, the weak spot is behind the headline spending figure. Sales up 0.7% in current dollars, but real growth is just 0.3%, showing less actual demand for goods. That can boost reported revenue, but margins could take a hit if costs for wages, energy or financing don’t come down.
The Fed kept rates steady last week, holding the benchmark at 3.50% to 3.75%. Officials said inflation is still above the 2% target, blaming supply shocks and higher energy prices.
The Fed ramped up pressure ahead of the PCE numbers. Officials now see 2026 PCE inflation at 3.6%, up from 2.7% in March. Their core PCE call moved to 3.3%, also up from 2.7%. The federal funds rate projection for year-end is now set at 3.8%, versus the previous 3.4%.
Rate futures trimmed bets on a near-term hike after the data. Markets gave about a 30% shot at a July increase, down from almost 40% earlier. Odds for a September move held close to 80%.
“The market is way too aggressive in pricing rate hikes,” Byron Anderson, who runs fixed income at Laffer Tengler Investments, said. Chip Hughey, who heads fixed-income at Truist Wealth, part of Truist Financial NYSE:TFC, said the curve pointed to Warsh’s focus on inflation and predicted it “should keep short-dated yields elevated near current levels longer.” BNP Paribas EPA:BNP U.S. rates strategy chief Guneet Dhingra said less direction from the Fed could mean “higher risk premiums” and more swings in the market. Reuters
Oil’s impact is a toss-up for the Fed. Torsten Slok, chief economist at Apollo Global Management NYSE:APO, said in Reuters Open Interest that markets are now saying the reopening of the Strait of Hormuz “will further overheat the economy.” Reuters
May’s report gives stocks a mixed read—consumers are spending, but much of it is just higher prices. Now, the question for retailers, banks and services is if that top-line growth holds up with the saving rate stuck at 3% and a Fed that isn’t moving to cut.
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