US PCE Inflation Data — Core 3.3%, Headline 3.8%; Fed Target 2%
US Personal Consumption Expenditures inflation data — the Federal Reserve’s preferred measure — was released this afternoon. Core PCE rose to 3.3% from 3.2% the previous month; headline PCE rose to 3.8% from 3.5% in March, well above the Fed’s 2% target. The rise follows the CPI surge to 3.8% for April. Kathleen Brooks, research director at XTB: “Today’s data could derail the stock market rally, particularly in the US and parts of Asia like South Korea, as it reminds the market that the war in the Middle East is causing real economic damage through higher interest rates. We could see yields pop higher later today, after a strong rally in global sovereign bonds over the last month.”
The PCE rise is the macroeconomic confirmation that the Iran-war oil shock has fed materially into US consumer prices — the lag from late-February war start to April inflation data is now playing through. The Fed’s stance is widely expected to shift from dovish to neutral or hawkish in response. US 10-year Treasury yields rose to 4.50% intraday on the data and the Iran escalation. The combined effect — persistent above-target inflation + renewed energy-price spike + collapsed peace-deal optimism — tightens the macro environment for both US and European central banks, with the ECB Chief Economist Philip Lane warning the global nature of the energy shock may amplify and prolong inflation impact across Europe.