TLDR
- The PCE index rose 3.8% year-over-year in April, the highest since May 2023
- Core PCE, excluding food and energy, climbed to 3.3%, up from 3.2% in March
- Middle East conflict pushed oil prices higher, contributing to the inflation rise
- Most Fed officials favor holding rates steady, but some won’t rule out a hike
- Bond markets are pricing in higher inflation and the possibility of one rate hike this year
The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures index, rose 3.8% year-over-year in April. That is up from 3.5% in March and is the fastest pace of price increases since May 2023.
BREAKING: April PCE inflation, the Fed's preferred inflation measure, rises to 3.8%, the highest since May 2023.
Core PCE inflation rises to 3.3%, the highest since October 2023.
The Fed's top inflation metric is nearly double their target.
Inflation is back in full-swing.
— The Kobeissi Letter (@KobeissiLetter) May 28, 2026
On a monthly basis, prices rose 0.4%, slightly below the 0.5% economists had expected. The data was released Thursday by the Bureau of Economic Analysis.
Core PCE, which strips out food and energy, came in at 3.3% year-over-year. That is up from 3.2% in March and marks the second straight monthly increase.
The rise in inflation was partly driven by higher oil prices linked to the ongoing conflict in the Middle East. Energy costs have been feeding through to broader prices across the economy.
Fed Officials Signal Rates Will Stay Put — For Now
The data confirms what many Fed officials have been saying: inflation is moving in the wrong direction.
Most members of the Federal Reserve see no reason to cut rates right now. A growing number are also refusing to rule out a rate hike if inflation stays elevated.
Fed Governor Lisa Cook said Wednesday she is watching closely whether companies embed higher energy costs into their pricing. She said she is “prepared to raise rates” if inflation does not fall in a timely manner.
Fed Governor Chris Waller echoed that view last Friday. Waller, who was previously one of the more dovish voices on the committee, now says inflation — not the job market — is his bigger concern.
Waller has joined four other Fed officials — Susan Collins, Lorie Logan, Neel Kashkari, and Beth Hammack — who want to update the Fed’s policy statement to reflect that the next move could be either a cut or a hike.
What the Markets Are Saying
Fed Vice Chair Philip Jefferson said Wednesday he expects inflation to ease later this year as tariff effects and the energy shock fade. But he flagged risks to the upside and is watching whether high energy prices start to weigh on consumer spending.
The consumer savings rate also fell to its lowest level in nearly four years, according to data released alongside the PCE report.
The 2-year Treasury yield, a key indicator of rate expectations, remains around 4%. That is 25 basis points above the top of the Fed’s current target range of 3.5% to 3.75%.
Bond markets are now pricing in higher inflation and at least one rate hike before the end of the year.
The Fed’s next policy meeting will be watched closely for any shift in tone from officials.
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