Consumer spending rose 0.7% last month even as inflation sped up to the fastest pace in three years, according to data released Thursday by the Bureau of Economic Analysis. The personal consumption expenditures index increased 0.4% in May and 4.1% on an annual basis, more than twice the Federal Reserve's 2% target. Core PCE, which excludes volatile food and energy prices, increased 3.4% from one year ago. Personal income and disposable income rose at the same 0.7% rate as consumer spending, highlighting economic resilience despite weak consumer sentiment and inflation exceeding the Fed's target for more than five years. The Atlanta Fed forecast on Thursday that gross domestic product will likely expand by 2.5% during the second quarter, 0.4 percentage point faster than first-quarter growth. Traders in interest rate futures see 80% odds that the central bank will raise the federal funds rate by at least a quarter percentage point by the end of 2026 from its current range between 3.5% and 3.75%, according to the CME Group's FedWatch tool.
LPL Financial Holdings IncRising inflation and strong consumer spending increase odds of Fed rate hikes, which could pressure financial stocks like LPL Financial through higher borrowing costs or reduced asset valuations, but the impact is mixed as higher rates may also boost net interest margins.