Clear Harbor Asset Management founder. CEO Aaron Kennon analyzes the Federal Reserve’s recent hawkish pivot under chairman Kevin Warsh on ‘Making Money.’
The Federal Reserve's preferredinflation gaugerose in May as price pressures persist in the wake of the energy shock caused by the Iran war.
The Commerce Department on Thursday reported that thepersonal consumption expenditures(PCE) index rose 0.4% on a monthly basis in May. is 4.1% higher than a year ago.
The monthly figure came in slightly cooler than the expectations of economists polled by LSEG. who predicted a 0.5% rise, while the annual figure was in line with the estimate.
Core PCE, which excludes volatile measurements of food. energy prices, was up 0.3% on a monthly basis and 3.4% from a year ago. Both figures were in line with expectations.
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Federal Reservepolicymakers are focused on the PCE headline figure as they try to bring inflation back to their long-run target of 2%. though they view core data as a better indicator of inflation. Compared with April's readings, headline PCE rose from 3.8% to 4.1%, while core PCE increased from 3.3% to 3.4%.
Goods priceswere up 2.3% in May from a year ago, and were up 0.4% from the prior month.
Services prices rose 2% compared with a year ago, and were up 0.5% on a monthly basis in May.
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Thepersonal savings rateas a percentage of disposable personal income was 3% in May. a level that was unchanged from the prior month.
Since the start of 2025, the personal savings rate has declined from a peak of 5.5% in April 2025,. it began this year with a 4.4% reading in January.
The energy price shock caused by the Iran war has helped drive inflation higher.(Ariana Drehsler/Bloomberg via Getty Images)
Heather Long, chief economist at Navy Federal Credit Union, said that, "Inflation is at a 3-year high due to the war inIranand it's painful for middle-class. moderate-income Americans."
"People are spending more on gas, along with healthcare and utilities. New Fed Chair Kevin Warsh has made his commitment clear to bring inflation down," Long said. "The key will be how much relief happens by September. In encouraging news, jobless claims remain low and the personal savings rate ticked up slightly in May."
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Americans' household budgets are strained by elevated inflation.(Justin Sullivan/Getty Images)
Ellen Zentner. chief economic strategist for Morgan Stanley Wealth Management, noted that "Sliding oil prices will take a while to work their way through the economy."
"Today's data is a reminder that inflation remains well above target and growth remains solid. This will keep the Fed on hold for quite some time, until conditions allow for a cut," Zentner added.
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Jeffrey Roach, chief economist at LPL Financial Research, said that, "Given the growth trajectory, the Fed is rightly focused on price stability. will remain hawkish this summer."
"If theIran crisiscreeps into Labor Day timeframe, we have a much higher chance that inflation pressures will seep into other categories. will force the Fed's hand," Roach said.
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