US Core PCE and Market reaction | May 2025

Fed’s Preferred Inflation Gauge Rises Modestly in May; Consumer Income and Spending Disappoint

Core PCE, which excludes volatile food and energy prices, climbed 0.2% MoM and 2.7% YoY, both marginally hotter than anticipated. Analysts at Vital Knowledge noted that the “slightly firmer core PCE is somewhat hawkish compared to the cooler May CPI/PPI earlier in the month, but overall inflation trends aren’t shifting dramatically. The Fed would likely be cutting rates now if not for tariff risks.”

Meanwhile, personal income fell 0.4% MoM and personal spending dropped 0.1%, both missing expectations. Consumer expenditures — which account for about two-thirds of the U.S. economy — were dragged down by a sharp decline in spending on cars and gasoline.