The Federal Reserve's preferred inflation gauge, the core Personal Consumption Expenditures price index, rose to 3.41% year over year in May, a nine-month high that reverses roughly two-thirds of the progress made since its October 2025 cycle low of 2.75%. Headline PCE climbed to 4.07%, driven by a 24.26% year-over-year surge in energy costs. Personal consumption growth cratered to just 0.5% in the first quarter, its weakest since early 2022, as the household savings rate fell to 3.9% and gasoline outlays jumped to $552.8 billion annually. Vanguard warns that sticky inflation will cap the Fed's ability to cut rates below a neutral rate of 3.5%, while Goldman Sachs still expects 50 basis points of reductions through 2026. The conflicting signals of reaccelerating inflation and a bending consumer leave the central bank in a difficult position ahead of its July meeting.
Goldman Sachs Group IncGoldman Sachs expects 50 bps of rate cuts through 2026, but sticky inflation may limit Fed action, creating mixed implications for the bank's earnings.