Core PCE & Fed: Spending Slowdown Fuels Rate Pause
- inflation, as measured by the Personal Consumption Expenditures (PCE) index, increased to 2.3% in May, according to the Bureau of Economic Analysis.
- The core PCE,excluding food and energy costs,also saw an increase,jumping to 2.7% in may from 2.5% in April.
- the PCE gauge revealed a $29.3 billion decrease, or 0.1%, falling short of the 0.2% increase recorded in April and economists' projections of a 0.1% rise.
May’s economic data reveals a complex interplay of forces. Inflation, driven by the PCE index, unexpectedly rose to 2.3%, halting a three-month decline. though, this surge coincided with a slowdown in consumer spending, dipping by 0.1%-a $29.3 billion decrease. Concurrently, personal income fell, adding further complexity. The core PCE also climbed, exceeding forecasts. The article dives deep into shifts in spending, from important drops in goods to varying trends in services. Expert analysis suggests potential implications for the Federal Reserve‘s monetary policy. Market reactions were mixed,with indexes showing minor gains. News Directory 3 keeps you informed on fluctuations. Discover what’s next for interest rates.
Inflation Rises to 2.3% in May as Consumer Spending Drops
Updated June 27, 2025
U.S. inflation, as measured by the Personal Consumption Expenditures (PCE) index, increased to 2.3% in May, according to the Bureau of Economic Analysis. This rise follows three consecutive months of decreasing inflation rates. The May PCE increase aligns with economists’ forecasts,with the index rising 0.1% for the month.
The core PCE,excluding food and energy costs,also saw an increase,jumping to 2.7% in may from 2.5% in April. This figure exceeded economists’ expectations of 2.6%. The core PCE climbed 0.2% for the month, surpassing projections of 0.1%.
However, consumer spending saw a slight dip in May. the PCE gauge revealed a $29.3 billion decrease, or 0.1%, falling short of the 0.2% increase recorded in April and economists’ projections of a 0.1% rise. Spending on goods experienced a $49.2 billion drop, primarily driven by a $49.3 billion decrease in motor vehicles and parts. Gasoline spending also fell by $19.8 billion. Nondurable goods spending rose by $8.6 billion, while clothing and footwear increased by $5.3 billion.
The decline in goods spending was partially offset by a $19.9 billion increase in services spending. Food services and accommodations saw a $10.6 billion decrease, and financial services spending fell by $5.7 billion.Housing and utilities spending rose by $13.7 billion, and healthcare spending increased by $11.3 billion.
Personal income also fell short of expectations,decreasing by $109.6 billion, or 0.4%. Economists had anticipated a 0.3% gain. Disposable personal income,personal income less current taxes,dropped by $125 billion,or 0.6%.
“The Fed’s preferred measure is projected to average 3.1% in 2025, significantly above its 2% target,” said John Murillo, chief dealing officer of B2BROKER. “Consumer pessimism, driven by the tariff war’s inflationary impact, is already hurting spending and investment. In fact, retail sales dropped by 0.9% in May – worse then expected - as consumers cut back on big-ticket items like cars and other luxuries. Stagflation risk is akin to the economic monster under the bed – slow growth, high inflation, and rising unemployment all co-occurring.”
Market reactions were muted,with the Dow Jones Industrial Average rising about 275 points in early trading.The S&P 500 was up approximately 30 points, and the Nasdaq gained 75 points.
The CME FedWatch poll indicated a shift in expectations regarding potential interest rate cuts in July. the poll showed that 81% of interest rate traders now expect the Federal Reserve to maintain current rates, up from 79% the previous day.