The inflation numbers the Federal Reserve watches most closely just delivered a message nobody wanted to hear. The Personal Consumption Expenditures Price Index rose 4.1% year-over-year in May 2026, the steepest climb since April 2023, according to data from the Bureau of Economic Analysis.
Core PCE, which strips out food and energy to give a cleaner read on underlying price pressures, wasn’t much better. It hit 3.4% annually, the highest since October 2023. For context, the Fed’s long-term target is 2%.
The numbers behind the squeeze
This wasn’t a one-month blip. April’s PCE reading already showed headline inflation at 3.8% and core at 3.3%, confirming that prices have been accelerating for months.
The Federal Open Market Committee’s June 17 meeting reflected the shift in tone. Policymakers revised their core PCE forecast for 2026 upward to 3.3%, a notable jump from the 2.7% projection made in March. The federal funds rate is projected to stay elevated through 2028.
