Core Inflation Rate Hits 3.4% in May, Highest Since October 2023, Fed's Preferred Gauge Shows

💡 The core inflation rate surged to 3.4% in May, its highest level since October 2023, according to the Fed's preferred gauge.

The Federal Reserve's preferred measure of inflation, the core personal consumption expenditures (PCE) price index, rose to 3.4% in May, its highest level since October 2023. This development is significant as it suggests that the Fed's efforts to cool down the economy through interest rate hikes may be taking longer than expected to bear fruit.

Inflation Remains a Key Concern

The core PCE price index, which excludes food and energy prices, has been steadily increasing over the past few months, reflecting the persistent upward pressure on prices in the economy. The 3.4% reading in May is a cause for concern for the Fed, which has been trying to bring inflation back down to its 2% target. The Fed's preferred gauge has been rising steadily since February, and May's reading is the highest since October 2023.

Market Reaction Expected

The market is likely to react negatively to this news, with investors increasingly concerned about the prospects of a recession. The 10-year Treasury yield, which has been rising steadily since the start of the year, is expected to continue its upward trend in response to the higher inflation reading. $TLT, the iShares 20+ Year Treasury Bond ETF, is likely to fall further as bond traders repriced the timing of the first rate cut from March to June.

What It Means for Investors