Newsletter · · Ashutosh Agarwal

Benign May Core PCE and Falling Oil Ease Fed Rate Hike Fears - US Macro Recap - Week of June 26, 2026

US macro recap for the week of June 26, 2026. May core PCE printed a benign 0.3%, oil completed its round-trip below $70, and hike odds eased to 40% as the Fed panic faded, while a Q1 consumption revision to +0.5% put the K-shaped consumer into the GDP math.

US Macro Recap

Week of June 26, 2026: Benign May Core PCE and Falling Oil Ease Fed Rate Hike Fears

Two weeks ago the tape was screaming hikes. This week it took a breath. May core PCE landed exactly where the desks wanted it, crude finished its round-trip back below $70, and the same front end that was pricing a Warsh tightening campaign quietly started to relax. The hawks still own the services data, but for the first time since the new chair planted his flag, the bond market and the prints are pulling the other way.

TL;DR

  • May core PCE printed 0.3% (0.32% unrounded), 3.4% y/y, in line, and crucially not the 0.4% upside the desks feared; the 10-year fell back below 4.40%.
  • Oil completed its round-trip to pre-war levels (below $70 WTI); 2s10s flattened to ~25bp and hike odds eased to ~40% as "Fed panic" fades.
  • The K-shaped consumer is now in the GDP math: Q1 personal consumption revised to +0.5% from 1.4%, with delinquencies at 13 to 15-year highs.

What's new

Voices this week: the cleanest reads came from people on the desk or in the real economy, a Treasury Secretary, a BMO rates desk, a parts importer writing the tariff checks. The loudest sticky-inflation case stayed with independent commentators. Flagged throughout.

1. The PCE print defused the bomb, core came in at 0.3%, not 0.4%. On Macro Horizons, BMO's Ian Lyngen and Ben Jeffery (operators, trading desk) noted May core PCE "up 0.3%... on an unrounded basis the move was 0.32%, so a solid but not particularly high 0.3%," versus "rumblings that an upside surprise of 0.4% was anticipated." Treasuries rallied, the front end outperformed, and they reiterated a constructive call: 10-year yields "drift back closer to 4%" with the Fed on hold "for the foreseeable future." On TraderMerlin, trader Merlin Rothfeld (operator) put Fed funds futures at roughly "40% probability" of a 25bp hike, well off the panic of two weeks ago.

2. Oil finished its round trip, and the bond market reads it as demand destruction, not inflation. On Eurodollar University, Jeff Snider (pundit) walked the tape: the 5-year breakeven "down roughly 20 basis points in just two weeks and nearly 40 basis points in a month" to ~230bp, the 10-year breakeven ~226bp, with the IEA cutting 2026 oil demand growth "by around 700,000 barrels per day... to roughly 1.1 million" and warning of a 2027 supply overhang. His read: breakevens and oil falling together are "the farthest thing from inflation risk."

3. The K-shaped consumer just showed up in the GDP accounts. On Macro Horizons, BMO flagged the Q1 GDP final revision: personal consumption "up just 0.5%... compared to the 1.4% prior estimate," even as business spending carried the number. That squares with The Pomp Podcast, where 42 Macro's Darius Dale (pundit) put 90-day-plus delinquencies on "credit cards, autos, student loans... either exceeding or right near the peak rates we saw at the height of the global financial crisis," while top-of-the-K cash holdings have ballooned "to just shy of $12 trillion from a starting point of $3.5 trillion just prior to COVID," dragging the savings rate to ~3.5%.

4. "K is for Kroger," the trade-down is now a named recession tell. On RiskReversal Pod, trader Danny Moses (operator) and Guy Adami pinned the bifurcation on Kroger's fresh 52-week low and a CEO admitting "operating costs have been growing faster than our sales... not sustainable," with shoppers "more deliberate" and chasing promotions. Delinquencies, Adami noted, are "anywhere from 13 to 15-year highs across the board" with credit-card debt at a record, "people are definitely strapped."

5. The buyback era is over, and the hyperscalers are about to flood the market with paper. On Chit Chat Stocks, a former 25-year capital-markets banker (pundit) sized hyperscaler on- and off-balance-sheet debt at "just under two trillion dollars," argued Alphabet's upsized "$85 billion" raise is "a sign that the dam's breaking" on primary equity supply, and predicted "the forgotten 490 starts to significantly outperform the headline triple-Qs" as capex replaces the buyback that drove 15 years of Mag-Seven dominance.

The debate

Both camps had airtime, but this week's tape handed it to the disinflationists.

Disinflation / soft-landing (won the week). Bloomberg's Stuart Paul (house economist) on Bloomberg Daybreak: US Edition called May "the local peak," with headline PCE ~4.1% and core 3.4%, then "disinflation coming in June and thereafter." On Facts vs Feelings, Sonu Varghese (pundit) argued the Fed is actually dovish, real rates have fallen "from 0.7% in March to 0.5% in June," near zero against a ~1.1% neutral, so "let's run it hot." The cleanest insider read: Treasury Secretary Scott Bessent (operator) on Squawk Pod said tariffs "have not meaningfully driven inflation" (Chinese producers eating 50%+ on low-end goods), pinned the recent rebound on Iran, and expects inflation "to approach Fed targets by summer."

Sticky-inflation / hawkish (still loud, mostly commentators). On Money, Markets & New Age Investing, Greg Weldon (pundit) hammered the pipeline: PPI final demand "1.1% for the month... 13% annualized," ex-energy "0.8%... a four-year high," intermediate services PPI "4.7% year over year," and unprocessed food PPI "4.8% for the month," "food inflation is the next big thing coming." Canada's Manulife team on Investments Unplugged went further, forecasting "oil above $110 per barrel in Q3" pushing US inflation "above 4%." Weldon's pipeline is real; it just isn't what the front end is pricing this week.

The trades in play

Plenty of instrument-level expression, and it skewed to FX, rates and energy:

  • Dollar (operator/desk): On The KE Report, Marc Chandler (operator, Bannockburn) is long the dollar index at ~100.6, watching a breakout "above 101.15... next target probably closer to 102, 102.5," on a US-vs-Europe rate-differential widening of "15 to 25, 26 basis points," new highs vs yen and CAD. JPMorgan's FX desk on At Any Rate is "bullish beta, bullish dollar," targeting EUR/USD "112 to 110."
  • Rates (operator/desk): BMO (Macro Horizons) is medium-term long Treasuries, 10-year toward 4%, eyeing the gap at 4.35 then 4.25 with the 200-day ~4.20.
  • Energy (operator/PM): On Thoughtful Money, Kevin Muir (operator, Macro Tourist) is long crude and energy equities, long USO into "record short interest" as a short-covering play, long gold miners over the metal, arguing China's SPR drawdown, not a glut, capped this cycle's oil, and that refilling now supports it. On Macro Mondays, Andreas Steno (operator) flagged the oil short as "already crowded... record shorts," pivoting to inflation-down beneficiaries instead, while long sterling/cable.

Read-throughs

  • Corporate credit: the hyperscaler pivot from buybacks to ~$2T of debt plus fresh equity (Chit Chat; Alphabet's $85B) is a structural new supplier of duration just as the front end relaxes, watch IG spreads if the issuance dam really breaks.
  • Real economy / tariffs: on Insight On Business the News Hour, Detroit Axle's Mike (operator) said tariff costs jumped from "$12.8 million in 2024 to $70 million in 2025," absorbed by killing profit rather than a 72.5% price hike, margin compression, not yet consumer CPI.
  • Policy: a Warsh Fed that, per Muir, "won't get too dovish until we get a problem in the economy or the stock market, most likely both," into a flattening curve and a softening consumer, raises the variance on every expression above.

What changed vs. Tuesday

The hawkish panic that defined last week is fading. Two weeks ago the front end sat at multi-year highs with a BofA three-hike call; this week core PCE came in benign (0.3%, not the feared 0.4%), oil completed its full round-trip below $70, the 10-year rallied under 4.40% toward a 4% target, and hike odds eased to ~40%, Forward Guidance literally asked "Is the Fed panic already fading?" The genuinely new wrinkle is the consumer: Q1 personal consumption was revised to +0.5% from 1.4%, so the K-shaped stress is now in the GDP math, not just the anecdotes. Still missing for a third straight week: any serious treatment of immigration as a labor-supply / break-even-payrolls variable, and the Sahm rule, the labor mic stayed off (Playbook of the Wealthy's "unemployment at 4.4%... trending toward the 5.5% 30-year average" chart was the week's only real labor data point).