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- Inflation rose moderately in April, keeping the Federal Reserve on track to hold interest rates steady for the foreseeable future.
- The Conference Board’s Consumer Confidence Index slipped in May for the first time in four months, though the decline was smaller than forecasted. Consumer spending has remained resilient.
- Despite a recent uptick in inflation, key differences from 2022 suggest the Federal Reserve (Fed) is unlikely to respond with aggressive rate hikes this time around.
1. April Inflation Data Comes in as Expected
The Personal Consumption Expenditures (PCE) Price Index rose 0.4% in April, roughly in line with expectations.1 A sharp jump in gasoline prices accounted for a portion of that increase. On an annual basis, the headline figure was up 3.8% from a year ago.1
Core PCE inflation, which omits volatile energy and food prices and is the Fed’s preferred inflation gauge, rose 0.24% for the month and 3.3% year over year.1 Looking at a three-month window, that pace works out to an annualized rate of 3.8%, well above the Fed’s 2% target.1
Given recent inflation data, a rate cut from the Fed appears unlikely in the foreseeable future. Further, the bar for rate increases appears high, particularly given that labor market conditions have grown more balanced and annual wage growth has slowed from nearly 6% in 2022 to roughly 3.5% last month.2 Against this backdrop, it is likely the Fed will hold rates steady through year-end.
2. Consumer Confidence Dips, but Less Than Expected
The Conference Board’s Consumer Confidence Index fell 0.7 points to 93.1 in May, marking its first decline in four months. The decline was smaller than the 91.9 reading that analysts anticipated.3 Consumers’ view of current business and labor market conditions slipped by about 3 points, but a slight improvement in the short-term outlook helped offset that weakness.3 Concerns included inflation, energy prices, and global uncertainty.
Even with the decline, the index sits only modestly below its historical average. That contrasts with the University of Michigan Consumer Sentiment Index, which hit a record low in April.4 The two measures tend to diverge because the Conference Board places more weight on employment conditions, while the Michigan survey emphasizes personal finances.
Despite the cautious tone in confidence readings, consumer spending has held up. A stable labor market and generally sound household finances have helped keep spending on track, even as sentiment has softened.
3. Why the Fed is Likely to Hold Rates Steady This Year
Recent inflation data and signals from Fed officials that rate hikes remain on the table have stirred concern among investors. A similar situation arose in 2022, when the Fed responded to surging prices with an aggressive series of rate increases that weighed heavily on stock markets.
We think today’s situation is meaningfully different in two ways. First, monetary policy is no longer loose. In 2022, the federal funds rate was near zero, while inflation hovered around 9%.5 Today, policy rates are roughly in line with inflation, giving the Fed less reason to respond aggressively to every uptick in price data.
Second, the labor market has cooled. In 2022, job openings far outnumbered available workers and wages were rising quickly.6 Today, unemployment is still low, but hiring has slowed and wage growth has not picked up in a way that would drive services inflation meaningfully higher.6
For these reasons, we believe the Fed will stay watchful, but is unlikely to overreact to what may turn out to be a short-lived, energy-driven inflation spike. Our base case is that the Fed will hold rates steady this year. We no longer expect near-term cuts, but we still believe the bar is high for hikes.
For the period ending 5/29/26.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 U.S. Bureau of Economic Analysis, Personal Income and Outlays News Release, May 2026
2 U.S. Bureau of Labor Statistics, Employment Situation Summary, May 2026
3 The Conference Board, Consumer Confidence Index Press Release, May 2026
4 University of Michigan, Surveys of Consumers, April 2026
5 U.S. Bureau of Labor Statistics, Consumer Price Index News Release, historical data
6 U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Summary (JOLTS), historical data
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
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We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_22
