Fed Interest Rate Expectations Shift After 4.1% PCE Inflation Data

The May Headline PCE rose to 4.1%, with core PCE at 3.4%, prompting a shift in Federal Reserve interest rate expectations. Economists predict at least one rate hike for 2026, moving from prior expectations of cuts. The CME FedWatch Tool shows a 70% probability of a 25-basis-point increase by September, with an 86% chance of at least one hike by December. Market responses indicate a focus on inflation pressures, influencing decisions by major banks like Bank of America and Goldman Sachs regarding their rate forecasts.