The Tell: Fed’s preferred inflation gauge fails to calm market fears, leaving ‘burden of proof’ on inflation optimists

by | Jun 30, 2022 | Stock Market

The latest reading from the Federal Reserve’s favorite price gauge, which contains some signs of cooling, is failing to calm the nerves of traders and investors who are fretting about a possible recession, higher interest rates and inflation that’s simply not coming down fast enough.U.S. stocks fell off sharply Thursday morning after the release of May’s inflation data, while investors flocked to the safety of Treasurys in a classic risk-off response to fears of slowing growth. But economists say it’s not just concerns about an economic contraction that are weighing on markets, pointing to still-worrisome signals in Thursday’s inflation report. While the initial take from the release of May’s so-called personal-consumption price index was focused on signs of easing price pressures in the narrower core measure, which excludes food and energy, the overall monthly PCE reading still rose 0.6% last month and was triple the 0.2% gain in April. In addition, the headline rate of inflation over the past year was unchanged at 6.3%.

“There might be a sense of victory for some that things are improving, but they need to be improving at a faster clip,” said  Will Compernolle, a senior economist for FHN Financial in New York. “Even though core PCE came in less than expected — which is certainly unusual because there have been mostly upside surprises to inflation …

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