DOGE Sparks Biggest Plunge In Social Security Handouts Ever; Fed's Favorite Inflation Indicator Ticked Higher In May

The Core PCE inflation indicator rose 0.2% month-over-month and 2.7% year-over-year in May, exceeding expectations. Despite this, non-durable goods prices only showed a modest increase. Headline PCE rose 0.1% month-over-month and 2.3% year-over-year. Non-durable goods prices flipped from deflationary to inflationary in May, but only modestly. The SuperCore PCE rate inched higher to 3.12% year-over-year. However, personal income and spending both declined in May, with the largest drop in income since September 2021. The decline in income was mainly due to a plunge in government handouts, including the largest drop in social security benefits ever. Private worker wages rose 4.6% year-over-year, while government worker wages slowed to 5.2%. The savings rate dropped significantly to 4.5% of disposable personal income. The question remains whether these numbers will prompt the Fed to cut interest rates or if they will continue to wait for the impact of tariffs to show up in prices.