US Inflation Hits Three-Year High, Raises Fed Rate Hike Odds
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose to 4.1% in May 2026, a three-year high, while core PCE reached 3.4%. Driven by energy price spikes from the Iran conflict and persistent services inflation, the data keeps the Fed on a hawkish path, with markets pricing a 50-82% chance of a rate hike by September. Consumer spending and personal income both rose 0.7%, but a potential US-Iran oil deal may moderate future inflation.
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US May PCE Inflation Tops 4%, Keeps Fed Rate Hike in Play
The US Personal Consumption Expenditures (PCE) price index surged 4.1% year-on-year in May 2026, the highest since April 2023 and the first reading above 4% in three years, driven by energy price spikes from the Iran conflict. Core PCE (excluding food and energy) rose 3.4% annually. A preliminary US-Iran peace deal lowered oil prices, suggesting inflation may have peaked, but services inflation remained strong. Financial markets placed an 80% probability on a Federal Reserve rate hike at the September 15-16 meeting. Consumer spending held up due to larger tax refunds and stock market gains. The inflation data poses a political challenge for President Trump and Republicans ahead of the November midterm elections.
Yahoo FinanceCore inflation rate hit 3.4% in May, highest since October 2023, Fed's preferred gauge shows
The Federal Reserve's preferred inflation measure, the core personal consumption expenditures (PCE) price index, rose to a 3.4% annual rate in May, the highest since October 2023, matching Dow Jones estimates. The headline PCE index reached 4.1% annually, the highest since April 2023. Consumer spending surged 0.7% in May, exceeding forecasts, while personal income also rose 0.7%. Despite elevated inflation, the economy showed strength, with first-quarter GDP revised up to 2.1% annualized growth. Energy prices surged 4% monthly, driven by the Iran war, while housing costs rose 0.3% and financial services/insurance jumped 1.2%. Fed Chair Kevin Warsh reiterated commitment to price stability, and markets now see a potential rate hike in September. The personal saving rate edged up to 3%.
US Top News and AnalysisFed's Favored Inflation Gauge Hits Near 3-Year High, Rate Hike Odds Surge
The Federal Reserve's preferred inflation measure, the core Personal Consumption Expenditures (PCE) index, rose to 3.4% annually in May, marking its highest level since October 2023 and surpassing analyst expectations. Headline PCE rose to 4.1%. The data reinforces market expectations for an interest rate hike by December, with CME FedWatch data showing 82.2% probability. The report notes that nine of 18 Fed officials favor at least one rate hike this year, and a majority in April warned of persistent inflation risks. The inflation surge is attributed to rising oil and gas prices amid the Iran war, with the Consumer Price Index also hitting a three-year high in May as gas prices surged nearly 59% year-over-year. Newly appointed Fed Chair Kevin Warsh has not yet made rate projections, but traders anticipate monetary tightening beginning as soon as September.
Forbes - BusinessFed's preferred inflation measure hits 3-year high, keeping talk of possible rate hike in play
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose to 4.1% in May, a three-year high, exceeding April's 3.8%. Core PCE, excluding food and energy, rose to 3.4%. The data keeps pressure on the Fed, which is holding rates steady but with a hawkish tilt. Fed Chairman Kevin Warsh reiterated the 2% inflation target, while nine of his colleagues project at least one rate hike this year. Markets now price in a 50% chance of a 25-basis-point hike in September. Deutsche Bank forecasts two hikes in September and December, citing broad-based inflation pressures. However, a potential Trump-Iran deal that lowers oil prices could moderate future inflation. The Fed projects headline PCE ending 2026 at 3.6% and core PCE at 3.3%.
Yahoo FinanceFed's Preferred Inflation Gauge Hits Three-Year High, Keeping Rate Hike in Play
The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures (PCE) index, rose 4.1% in May—the highest level in three years—up from 3.8% in April, likely keeping the central bank on hold with a bias toward hiking if inflation persists. Core PCE, excluding food and energy, rose 3.4%, also above April's 3.3% and the highest since October 2023. Fed Chair Kevin Warsh reiterated the target of 2% inflation, while nine of 18 Fed officials projected at least one rate hike this year, with six expecting two. Markets price a 50% chance of a 25-basis-point hike by September. Deutsche Bank forecasts two hikes in September and December. However, an oil price plunge following President Trump's deal with Iran may signal that inflation is topping, though still elevated.
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