May Core PCE Hits 3.91% as Warsh Inherits Inflation Problem

The core PCE acceleration also pressures bond yields. The two-year yield, sensitive to Fed policy expectations, is likely to rise on the print. That would tighten financial conditions, a drag on risk assets. The dollar's strength could weigh on emerging market currencies, raising import costs for countries with dollar-denominated debt.

New Fed Chair Kevin Warsh inherits inflation well above the 2% target. Core PCE remains above 3.4% year-over-year. His first policy decision comes at the July FOMC meeting. A rate increase would signal hawkish intent. Holding steady could be read as dovish. Cutting would risk embedding higher inflation expectations. The data presents a clear fork in the road: raise now or face a longer, more disruptive tightening cycle later. For context on similar rate-hike calls, see Kashkari Flips to Rate Hike Call as Inflation Hits 4.1%.

If the May pace continues into June, the three-month annualized average for core PCE would exceed 3.5%. That is a level the previous Fed did not tolerate without a response. The July meeting will test whether Warsh shares that reluctance.

The next FOMC meeting is scheduled for late July. Warsh holds his first press conference as chair.