Rates Close Higher After May PCE Print

Rates rise following May PCE print

Earlier today, the Bureau of Economic Analysis released a report that showed personal income stagnated in May while core PCE rose 0.5%.  Treasury yields and swap rates closed 1-6 bps higher, despite the headline reading coming in below expectations – the 10-year yield closed 3 bps higher at 1.52%.  US equity indices ended mixed – the S&P 500 and DJIA rose 0.3% and 0.7%, respectively, while the Nasdaq decreased 0.1%.

Core PCE rose 0.5% in May

After rising 0.7% in April, May’s core personal consumption expenditure, the Fed’s gauge on overall inflation, came in slightly under expectations.  According to the report, May’s increase “reflected an increase of $74.3 billion in spending for services that was mostly offset by a $71.5 billion decrease in spending for goods.”  Year-over-year, the core PCE index is up 3.4%, the highest level in over 20 years.  Personal income declined by 2% last month vs. a 13.1% drop the month prior due to “a decrease in government social benefits.”  Consumer spending was unchanged in May, despite the uptick in gas prices and airfare.

Boston Fed President Eric Rosengren thinks the Fed’s dual mandate goals could be met next year

Fed Chair Jerome Powell has previously stated the central bank remains committed to its outcomes-based approach and will wait to raise rates until its dual mandate goals are met.  In his speech earlier today, Rosengren commented, “it wouldn’t surprise me based on the current projections of what we’re seeing in the data that the criteria could be met as soon as the end of next year.”  He estimated the economy could reach full employment as early as the end of this year and believes inflation will only be slightly over the 2% target net year.