Summary

• The Federal Reserve has been keeping interest rates steady, waiting to see whether the recent inflation surge will be temporary.
• Headline PCE rose to a 4.1% year‑over‑year increase last month, the fastest pace in three years.
• Fed funds futures continue to lean toward no change at next month’s policy meeting, but the odds shift in favor of tightening in September.
• The trajectory of inflation in the coming months will determine whether the Fed can preserve its institutional credibility.

The Federal Reserve has been keeping interest rates steady, waiting to see whether the recent inflation surge will be temporary. That decision carries more risk after yesterday’s update of the Personal Consumption Expenditures (PCE) index for May, which shows that