Happy Friday! New Personal Consumption Expenditures (PCE) for May are out this morning, and if this is the way the economy thinks it needs to perform to keep the Fed from raising interest rates again, it’s got another think coming: Personal Income last month came in +0.4%, 10 basis points (bps) above expectations and in-line with the previous month’s print. Personal Spending increased just +0.1%, down from +0.2% expected and downwardly revised +0.6% reported for April.

In any normal universe, this would be consistent with a healthy economy moving forward almost methodically. Higher incomes combined with reduced spending brings buying power to consumers. The PCE Index for the month came down to +0.1% from an unchanged +0.4% for April. But Core PCE — stripping out volatile food & energy costs — reached +0.3%, down 10 bps month over month.

Where the focus really tightens in this expansive report is in year-over-year metrics, particularly on core: headline year-over-year PCE hit +3.8%, which is instructive: this is the first sub-4% read since April 2021, strongly suggesting our bout with inflation over the past two years is finally being won. This is about half what year-over-year PCE was reporting a year ago.

That said, Core PCE year over year remained at a stubborn +4.6% — still 10 bps lower than the previous month, which is something, but sustaining 4%+ prints throughout 2023 so far. In fact, we haven’t seen a sub-4% PCE on core year over year since December 2021. Thus, while we see headline yearly PCE performing well, it might be temporary if food and energy prices swing back up for any reason. And the stickier aspects of inflation appear to be with us currently, still.

This brings me back to my initial reaction at the top of this article: this PCE report will do nothing to quench the Fed’s thirst for hiking interest rates until inflation has clearly been curbed. Yet pre-market indices are taking this news well: the Dow is +170 points at this hour, the S&P 500 is +30 and the Nasdaq is +140. These are off pre-report figures of +100 points, +20 and +85, respectively. There are still plenty of inflation prints to comb through until the next Fed meeting. But are investors sanguine on another rate hike?

Today’s trading day also puts a wrap on calendar Q2 and the first half of 2023. The cautious stance we’d seen from market participants since reaching year-to-date highs mid-month looks like it’s giving way to further equity accumulation. Should this continue, this June will have added up to perhaps the strongest trading month of the year so far. Feel free to rub this in to friends and family members who still say, “Sell in May and go away.”

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