Personal Income Declines, Spending Slows
Personal income fell by 0.4% in May, a drop of $109.6 billion, following a 0.7% rise in April. Disposable personal income declined by 0.6%, reflecting higher tax burdens and slower wage growth. Meanwhile, personal consumption expenditures fell by 0.1%, a $29.3 billion decline that signals households are reducing discretionary spending under tighter financial conditions. The personal saving rate edged up to 4.5%, indicating a cautious stance by consumers amid persistent inflation pressures.
Market Impact: Rates, Dollar, and Equity Futures React
Treasury yields inched higher after the release, with the two-year yield testing recent highs as traders adjusted to the stickier inflation backdrop. The dollar firmed against major pairs, with USD/JPY climbing toward recent resistance as rate differentials remain supportive of the greenback. Equity futures dipped in pre-market trading, with rate-sensitive sectors like tech facing renewed pressure as the data reduces the likelihood of aggressive near-term rate cuts.
Short-Term Outlook: Fed Likely to Stay Cautious
The hotter core PCE print, combined with declining personal income and cautious spending, suggests the Fed will maintain a restrictive stance, delaying potential rate cuts until inflation trends closer to target. Traders should anticipate continued volatility in Treasury and FX markets, with upside risks for yields and the dollar if inflation pressures persist in upcoming prints.
