Inflation: Fed's core PCE reading remains hot ahead of June meeting

Yahoo Finance fiscal policy reporter Jennifer Schonberger discusses the latest PCE release as investors speculate what the latest inflation data says about a potential interest rate hike from the Fed.

Video transcript

DIANE KING HALL: The Fed's go-to inflation gauge has come in hotter than expected. PCE adding to the debate over the June rate meeting. The CMS Fed tracker now largely pricing in a quarter point hike. Let's get the details with Yahoo Finance's Jennifer Schonberger. Jennifer, take it away.

JENNIFER SCHONBERGER: Hey there. Good morning, Diane. That's right. The Fed's preferred measure of inflation actually accelerating in the month of April. That core PCE number clocking in up 4/10s of a percent month-over-month, year-over-year, 4.7%. And that is actually inching up from the 4.6% that we saw back in March and, of course, what was expected. This clearly goes in line with how Fed officials have said they are frustrated with the pace, a slow pace of bringing inflation down. Take a look at the Fed fund futures this morning. They've been jumping around, very volatile. But they were pricing in as much as nearly a 60% chance that the Fed could hike by 25 basis points in the middle of next month.

You look at the Fed funds-- excuse me, the Fed minutes that were released on Wednesday. And Fed officials during the last meeting were really uncertain about what their next move was going to be. Several were leaning towards a pause, but many really wanted to keep their options open. Since the last meeting, of course, we're hearing from many members of the Fed. Last Friday, Fed Chair Powell saying that he really wants to keep options open. Along with that, Fed Governor Christopher Waller saying he's not certain what he wants to do in June. But until we see convincing evidence that inflation is cooling, the Fed should continue to raise rates.

Along with that, St. Louis Fed President Bullard has been calling for two more rate hikes. Dallas Fed President Lorie Logan saying now is not the time to pause. On the flip side, we heard from Boston Fed President Susan Collins yesterday saying that the Fed may be near a point where it could pause. Of course, we're going to get more data here. Next Friday, we've got the jobs report. We're also going to get CPI out on the first day of the Fed's meeting. So that will help paint the picture in as well. But you mentioned the debt ceiling earlier on in the program. And while it seems like negotiators may be zeroing in on a deal right now, it remains to be seen whether they can actually get this over the finish line in time to avoid a downgrade in our credit rating.

So that remains a wild card. If we ain't able to get past this debt ceiling and pass it, then perhaps the point is in the camp, if you will, for another June rate hike. We'll have some more clarity towards the end of next week. Ladies.

JULIE HYMAN: You know, something we have to know too, Jen, is that the Federal Reserve seems divided right now in terms of-- because we've gotten a lot of Fed speak, right? So how does this number sort of feed into that?

JENNIFER SCHONBERGER: Right. So exactly what I was saying was we have so many people in one camp who want to see and wait for the data, and then others who aren't really convinced that-- they say inflation is too high, sort of your Lorie Logans, your Mesters, your Bullards, perhaps Waller could be in that camp as well. And so again, taking this number out aside from the debt ceiling fiasco, it would lean in favor of another rate hike I think in their view. But again, we're going to really have to see how these negotiations shake out if they don't make the deadline in time and we see markets crash. That is obviously going to have economic implications, and that could vote for perhaps a pause until July to see how things shake out.

DIANE KING HALL: All right. Excellent commentary as per usual from our Jen Schonberger.

JENNIFER SCHONBERGER: Thank you.

DIANE KING HALL: You're welcome.

JENNIFER SCHONBERGER: And I have to say, ladies, you guys are coordinated there in your outfits. I didn't get the memo.

DIANE KING HALL: I mean, great minds think alike.

JULIE HYMAN: It was an accident. There's something in the water this week.

DIANE KING HALL: I know. I agree.