The latest inflation data for May came in mostly in-line and the annual large bank stress test had a 100% pass rate. The net impact was higher equity prices, particularly across U.S. growth stocks, and a modest Treasury sell off as odds for a quarter point hike in Fed Funds in July moved to 90%.

May PCE (June 30) changes reflected general trends already observed in the earlier CPI report. The headline monthly 0.1% increase helped lower the 1-year change to just 3.8%. The core measure, which excludes benefits from the large drop in energy prices, remained elevated up 0.3% from April and +4.6% from a year earlier. The stickiness of wage inflation can also be observed with personal income still running almost 5% on an annualized basis reinforcing the wage-price spiral risk that almost certainly maintains the Fed’s focus in assessing future monetary policy path.

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