In May 2025, the Core Personal Consumption Expenditures (PCE) Index—the Federal Reserve’s preferred measure of inflation—rose to 2.7%, slightly above economists’ expectations. This unexpected uptick is sending mixed signals to the financial markets.
While inflation appears to be moderating compared to past years, the higher-than-expected PCE may delay aggressive interest rate cuts from the Fed. Investors had hoped for faster monetary easing, but the data suggests the central bank might stay cautious to avoid reigniting inflation.
The Core PCE strips out volatile food and energy prices, giving a clearer picture of underlying inflation. As a result, it heavily influences Fed policy decisions. With markets watching every data point closely, this rise in core inflation is now reshaping expectations around upcoming Federal Reserve interest rate decisions.
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