The Federal Reserve's closely watched inflation gauge—the core Personal Consumption Expenditures (PCE) price index—rose to an annual rate of 3.4% in May, up from 3.3% in April and matching expectations. The monthly core PCE increase came in at 0.3%, while the headline PCE, including food and energy, surged to 4.1% year-over-year (from 3.8%) and 0.4% month-over-month.
The data, released at a time of heightened sensitivity around Fed policy, immediately reinforced market bets on further monetary tightening. Ahead of the release, Wall Street investors had already been pricing in a higher chance of a rate hike later this year, and the stubbornly elevated inflation readings only added to those expectations. The CME FedWatch Tool showed the probability of a July rate increase climbing, with many analysts warning that a strong PCE print could push the Fed to act sooner rather than later.
Bitcoin, which had already been under pressure from summer liquidity drains, ETF outflows, and quarter-end options expiry, extended its decline following the release. The leading cryptocurrency is often treated as a risk asset and is sensitive to changes in interest rate expectations. A higher-for-longer rate environment makes speculative investments less attractive, strengthening the US dollar and weighing on crypto prices. While the data was largely in line with forecasts, the upward move in annualized figures left little room for optimism about a near-term pivot by the central bank.
