Why the inflation of May PCE, 2025 could carry the cuts of the FED rate at the end of the year
The last US inflation report has delivered a shake to the Wall Street and cryptography markets, which reinforces the fear that the Federal Reserve has to keep the highest interest rates for longer, delaying any cut until the end of 2025. Personal consumption expenses (the PCE price index (PCE), the preferred inflation of the Fed of the Fed.
Central PCE inflation, which eliminates volatile food and energy prices, increased 2.7% year after year in May 2025, the highest reading since February. Monthly, Core PCE increased 0.2%, exceeding the expectations of analysts of 0.1%. Meanwhile, the main PCE index rose to 2.3% of 2.1% in April, which stresses that the inflation problem not only persists but wins again.
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This unexpected increase in inflation occurs despite the aggressive position of the Federal Reserve’s interest rate, which has maintained the costs of high loans for more than a year in an attempt to cool the demand and return inflation to its 2%goal. May figures suggest that price pressures remain generalized throughout the economy, challenging the predictions that the worst inflation was behind us.
Why inflation does not cool
Several forces are promoting this stubborn inflationary impulse:
1. Wide base price increases: Central inflation continues to show persistent ascending pressure in goods and services. High indebted costs have not yet translated into a slowdown in spending, and consumers maintain a solid demand despite the highest rates.
2. Tariff risks: The Biden administration tariffs on Chinese imports, which will intensify at the end of this year, are ready to add an upward pressure on the prices of consumer goods. Analysts project that these rates could increase inflation by another 1% in the fourth quarter of 2025.
3. Strong salary growth: The labor market remains tight, with solid growth and an increase in the increase in wages that feed consumer spending. This salary cycle increases and a greater demand is contributing to persistent price pressures in multiple sectors.
The new Fed dilemma: higher for longer
For months, the markets had been betting on the fed initiation rates cuts in mid -2025, citing progress in the inflation struggle and the signs of an economic deceleration. However, the latest data has changed this narrative. Economists now warn that rate cuts could be delayed until September or even December if inflation remains above the objective of the Fed.
The president of the Federal Reserve, Jerome Powell, has repeatedly emphasized patience, stating that the Central Bank needs to see “sustained progress” in inflation before facilitating politics. As Alpha Binwani capital pointed out in a recent market comment, “the number one enemy of the Fed is now persistent inflation. The tariff cuts are on ice until the data supports them.”
Financial markets have begun to be rapidly stressed, with the increase in treasure yields and strengthening the dollar after the report. The soft earth scenario in which many had a price could now give way to a higher reality for the person.
A Bloomberg table tells the story
A recent Bloomberg table illustrates the current inflation panorama vividly. It shows the central PCE inflation in the upward trend in a month since the beginning of 2024, while consumer spending adjusted by inflation continues to increase. Despite high interest rates, US households maintain a strong demand, especially for goods, a sign that rates increases have not cooled the economy enough.
What follows: tariffs, salary growth and winds against global
Looking towards the future, several risks could feed greater inflationary pressure in the coming months:
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Duty: As new tariffs on Chinese imports enter into force at the end of this year, consumption prices are expected to increase electronics, clothing and home items.
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Salary inflation: It is likely that strong salary growth persists, with the oppression of the labor market that shows few signs of relaxation. This could maintain the power of consumer spending, feeding additional pressures on the demand side.
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Global factors: The challenges of the supply chain, geopolitical tensions and volatility of the energy market could add greater complexity to inflation perspectives.
Implications of the cryptographic market: more volatility ahead
For cryptographic investors, the return of inflation as a central economic concern brings a mixed bag of risks and opportunities:
Short -term pressure: The latest rate cuts perspective means more strict liquidity conditions, which generally lead to setbacks in high -risk assets such as Bitcoin and Altcoins. Investors could see continuous volatility as the markets fit the highest rate environment for lengths.
Potential in the middle of the period: As concerns are intensified about centralized monetary systems, narratives around cryptography as inflation coverage could gain traction. Decentralized finance protocols (Defi) and Bitcoin could benefit from a renewed interest among investors looking for alternatives to fiduciary currencies.
Long -term opportunity: If inflation remains high in 2026, cryptographic adoption could accelerate, driven by the growing distrust of traditional monetary policy and a search for assets perceived as value stores.
Wall Street reacts: market reproduction and strategy changes
The main investment companies are already reviewing their forecasts in the light of May inflation data. Goldman Sachs has adjusted his perspective, pushing his timeline of feeding feed rate expected to the fourth quarter of 2025. Meanwhile, Morgan Stanley has warned customers to prepare for continuous market volatility of the market, emphasizing the need for portfolio diversification.
The stocks reacted negatively to the inflation report, with important indices that experienced a setback in the midst of concerns for prolonged high rates. Technological actions, in particular, faced a renewed pressure, while bond yields increased as merchants stressed their expectations.
Conclusion: Inflation takes the center of the stage again
The inflation report of May 2025 has made clear one thing: inflation has returned to the driver’s seat, and the road cuts has become significantly more uncertain. For the Federal Reserve, the challenge is marked: cutting rates too soon and the risk of rekindling the inflation spiral, or maintaining stable rates and testing the resistance of the economy.
For investors, this moment marks a possible restoration in the market cycle. The inflation narrative is not just a data point; It is a structural force that could remodel investment strategies between actions, bonds and cryptocurrencies.
As Wall Street, cryptographic merchants and policy formulators conform to this new reality, one thing is safe: the second half of 2025 will be molded by the persistent inflation that proves to be and how Fed responds. For those who sail for these markets, now it is time to prepare for an environment where inflation is not simply a late occurrence but the economic challenge of the year.
Writer
@Ellena
Ellena is an experienced cryptographic writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides information about the latest trends and innovations in the currency space.
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