Fed's favored inflation gauge showed prices pulled back in June
The Fed's favored inflation gauge eased but remained elevated in June, with PCE inflation remaining well above the Fed's 2% target.
The headline says "pulled back," but the numbers tell a more stubborn story. June PCE fell 0.1% on the month, yet the annual rate remains at 3.7%, and core PCE is still running at 3.3% year-over-year. The Fed's 2% target is not on the horizon; it is on a different continent.
The monthly dip is largely a function of energy volatility, not a structural cooling. Strip out food and energy, and core inflation barely budged at 0.1% for the month. That is the figure the Fed actually watches, and it is still well above comfort.
For the labor market, the implication is straightforward: with core services inflation sticky and headline PCE nowhere near target, the Fed has little reason to cut rates aggressively. That keeps borrowing costs elevated, hiring cautious, and wage growth under pressure from employers who can still point to inflation as justification for restraint.
The market signal here is not "inflation is defeated." It is "inflation has plateaued at an inconvenient level," which is precisely the condition that prolongs the current hiring freeze and keeps compensation growth modest. Anyone reading this as a green light for a hiring spree is reading the wrong gauge.