Inflation just won't quit, and the latest data is raining on the parade for Americans hoping the Federal Reserve would soon offer relief by lowering interest rates. The personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, showed prices rose 2.6% annually in May according to the Bureau of Labor Statistics.
While that matched economist estimates, it marks the 16th straight month the PCE index has exceeded the Fed's 2% target. The more critical core PCE reading, which strips out volatile food and energy costs, decelerated slightly to a 2.6% annual increase - the slowest pace in over two years. However, it's still well above policymakers' comfort zone.
The lack of progress easing underlying inflation pressures dashes hopes on Wall Street that the first of two anticipated Fed rate cuts could come as soon as September. Financial markets had been pricing in that scenario based on signals core inflation was finally turning the corner. But the latest PCE update paints a picture of persistent price pressures that are simply not coming down fast enough.
What You Need to Know About the Middle-Class Massacre
![](https://mcusercontent.com/6e7112ee59dfce21b40dd90be/images/b61343c5-cf71-2b4f-c632-b1c59a829ebf.png)
When it strikes, and all his research proves it will strike in 2023, he predicts stocks will crash 50% ... real estate will be slashed in half ... unemployment will surge to record highs ... and the wealth of millions will be decimated as the biggest bubble in history bursts.
Go here for the full story…
![](https://gallery.mailchimp.com/6e7112ee59dfce21b40dd90be/images/5381a560-c43d-4139-8a39-c27df52cf896.png)
"The lack of surprise in today's PCE number is a relief and will be welcomed by the Fed," said Seema Shah of Principal Asset Management. "However, the policy path is not yet certain."
While steady on a monthly basis, digging into the details reveals inflation is still putting the squeeze on American consumers. Services costs climbed 0.2% from April even as goods prices declined 0.4%, offsetting each other. But for cash-strapped households, it's the continued rise in grocery costs that stings the most - food prices ticked up another 0.1% in May.
On the income side, real disposable personal income fell 0.1% as stubbornly high inflation eroded consumers' purchasing power. It was the latest testament to the challenging environment facing households. Not surprisingly, faced with higher prices and interest rates, Americans pulled back on spending last month with personal consumption expenditures rising just 0.2% versus projections of 0.3%.
The slowdown in consumption poses a fresh headache for the Fed in its battle against inflation. If consumers start to broadly retrench due to strained budgets, it raises the threat of an outright recession hitting the economy. That makes the central bank's mission of engineering a "soft landing" - cooling demand just enough to ease price pressures without cratering growth - even more precarious.
For Fed Chair Jerome Powell and colleagues, the frustrating lack of progress is forcing them to leave interest rates higher for longer, despite the economic pain it's causing. In his latest Congressional testimony, Powell warned that further rate hikes can't be ruled out if inflation persists. It was a sobering reminder that the fight is far from over.
With little choice but to prioritize wrestling down consumer prices, the central bank appears resigned to stay the course on its rate hiking campaign for now. The inflation dragon has proven remarkably difficult to slay, shattering hopes for an imminent pause or pivot to rate cuts. Policymakers are signaling forcefully that they won't let up until PCE and core readings are fully back down to their 2% objective. For inflation-weary consumers and investors alike, that could mean plenty more economic pain is still to come.