US Core PCE Matches Forecast at 3.3%, Consumer Spending Cools
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
inflationpcefederal-reserve
Fazen Markets Editorial Desk
Collective editorial team · methodology
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The Bureau of Economic Analysis reported on May 28, 2026, that the core Personal Consumption Expenditures (PCE) price index increased 3.3% year-over-year in April, matching consensus estimates. The monthly core reading rose 0.2%, slightly below the 0.3% forecast. Concurrent data showed a significant cooling in personal consumption, which increased just 0.1% for the month, and flatlined personal income, underscoring a potential slowdown in US economic momentum.
The Federal Reserve prioritizes the core PCE index as its primary inflation gauge because it captures changes in consumer behavior and provides a broad view of price pressures. The April data arrives three weeks before the Federal Open Market Committee's June 17-18 policy meeting, where officials will assess progress toward their 2% inflation target. The core reading has remained stubbornly above 3% for over a year, despite the Fed maintaining its benchmark rate at a restrictive level of 5.25%-5.50% since July 2025.
The deceleration in monthly price gains, particularly in services, suggests that the Fed's tight monetary policy is gradually transmitting through the economy. The flat income reading of 0.0% MoM, a sharp drop from March's revised 0.5% increase, indicates weakening wage growth. This combination of cooling inflation and softening demand provides the Fed with critical evidence that the economy is responding to elevated interest rates, potentially opening the door for a policy shift later in the year.
The April report presented a mixed but generally encouraging picture for inflation hawks. Headline PCE inflation, which includes volatile food and energy costs, was 3.8% YoY, also aligning with expectations. On a monthly basis, headline PCE increased 0.4%, a step down from March's 0.5% pace. The core PCE MoM reading of 0.2% represents a moderation from the 0.3% rate recorded in the prior three months.
More granular data revealed a notable slowdown in underlying service-sector inflation, a key focus for the Fed. The supercore measure—PCE services excluding energy and housing—rose just 0.1% in April, half the pace of the previous month's 0.3% increase. Another closely watched metric, PCE excluding food, energy, and housing, also increased 0.2%, down from 0.3% in March. Consumer spending growth slowed to 0.1% MoM, compared to a revised 0.3% in March and below the 0.3% consensus estimate.
| Metric | April 2026 | March 2026 (Revised) |
|---|---|---|
| Core PCE (MoM) | 0.2% | 0.3% |
| Personal Spending (MoM) | 0.1% | 0.3% |
| Personal Income (MoM) | 0.0% | 0.5% |
The data is likely to be interpreted as a goldilocks scenario for equity markets, signaling receding inflation pressures without an immediate collapse in economic activity. Rate-sensitive sectors like technology and housing should benefit from the increased likelihood of future Fed easing. ETFs like the iShares U.S. Home Construction ETF (ITB) and the Technology Select Sector SPDR Fund (XLK) may see inflows as investors price in lower borrowing costs.
Conversely, the flat income and tepid spending figures pose a headwind for consumer discretionary giants like Amazon (AMZN) and McDonald's (MCD), which rely on strong consumer demand. The report also presents a challenge for financial institutions like JPMorgan Chase (JPM), as lower interest rates for longer compress net interest margins. A key counter-argument is that one month of softer data does not constitute a trend, and the Fed will require several more months of similar reports before committing to rate cuts. Market positioning data shows a recent increase in short bets on the US Dollar Index (DXY), anticipating a more dovish Fed path.
All eyes are now on the June 17-18 FOMC meeting, where the Fed will release updated economic projections, including the dot plot of interest rate expectations. The May Consumer Price Index report, scheduled for release on June 12, will be the final major inflation print before the Fed's decision. If the CPI confirms the cooling trend seen in the PCE data, pressure will mount on the Fed to signal a timeline for policy normalization.
Traders will monitor the 10-year Treasury yield, which has been trading near 4.30%, for a break below the psychologically significant 4.25% level, which would signal entrenched dovish sentiment. The next PCE report for May, due on June 30, will be critical for confirming whether April's moderation was an anomaly or the start of a new disinflationary trend. Key resistance for the S&P 500 remains at the 5,500 level, a breach of which would require sustained positive inflation data.
The Consumer Price Index (CPI) measures the cost of a fixed basket of goods and services, while the Personal Consumption Expenditures (PCE) index tracks all consumption expenditures, allowing for substitution as consumer preferences change. The Fed prefers the PCE index because it provides a more accurate picture of actual spending patterns and has a broader scope. The CPI typically runs about 0.3-0.4 percentage points higher than the PCE due to methodological differences in weighting housing and healthcare costs.
Slowing consumer spending directly impacts sectors reliant on discretionary income. Retailers like Target (TGT) and restaurant chains like Starbucks (SBUX) often see pressure on their revenue forecasts. Conversely, consumer staples companies like Procter & Gamble (PG) and utilities tend to be more resilient as demand for essential goods remains stable. The market often rotates from cyclical to defensive sectors when consumption data weakens, as seen in the relative outperformance of the Consumer Staples Select Sector SPDR Fund (XLP) versus the Consumer Discretionary Select Sector SPDR Fund (XLY) during such periods.
The Fed began emphasizing supercore PCE—services excluding energy and housing—because it is considered a strong indicator of domestically generated, persistent inflation driven by wage growth. Goods prices are more influenced by global supply chains, while housing inflation is a lagging indicator. By focusing on supercore, the Fed aims to gauge the underlying inflation trend that its monetary policy can most directly influence. A slowdown in this category, as seen in April's 0.1% reading, is a positive signal that tight policy is effectively cooling the labor market and demand.
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