The labor market, inflation, GDP, and durable goods orders all came in at the same time. Some of the data suggests the economy is stronger than we thought. Other figures show inflation is proving more stubborn than we'd like.
And right in the middle of it all sits the Fed, which now has to decide what to do with interest rates.
Let's start with the quieter numbers of the day.
Weekly jobless claims fell to 215,000, below the 225,000 economists had expected and down from 227,000 the previous week. Simply put, fewer people lost their jobs. That's good news.
There is one small catch, though. Continuing claims, which measure the number of people still receiving unemployment benefits, rose to 1.821 million, slightly above expectations.
What does that mean? People who lose their jobs are taking a little longer to find new ones. Nothing alarming, but it's worth keeping in mind.
Now let's move to durable goods orders.
New orders fell 4.5% in May. That sounds bad at first, but virtually the entire decline came from transportation equipment, which dropped 14% after two particularly strong months.
If you exclude transportation, orders actually rose 1.3%. In other words, the underlying picture isn't weak. Large aircraft and automobile orders simply tend to come in waves.
Now we get to the first major number of the day: Core PCE.
Put simply, it's the Fed's favorite inflation measure. It excludes food and energy prices, which tend to swing sharply, giving policymakers a cleaner picture of underlying inflation.
Core PCE rose 0.3% for the month and reached 3.4% on an annual basis, well above the Fed's 2% target.
So what does that tell us?
Inflation remains sticky. It's not coming down easily.
There's more.
Personal income surged 0.7% in May, well above expectations. But personal spending increased by exactly the same amount, 0.7%. In other words, consumers earned more and spent it all.
Meanwhile, the personal savings rate fell to 3%. A year ago, it stood at 4.6%. Americans are saving noticeably less than they were.
Analysts, however, are split.
On one side, Brusuelas argues that inflation likely peaked in May because oil prices have fallen since then. But he also warns that Core PCE tends to be stubborn. With AI investment and rising defense spending putting upward pressure on prices, he believes a rate hike is now more likely than a rate cut.
On the other side, Russell says investors should stay calm. In his view, today's report reflects the past rather than the present. Inflation is still elevated, but that doesn't necessarily mean it's about to accelerate further.
Two analysts.
Two completely different interpretations.
And the Fed is stuck in the middle.
Now let's turn to the second major number of the day: GDP.
The third and final estimate for first quarter GDP was revised higher, from 1.6% to 2.1%.
To understand why that matters, remember that the economy grew by just 0.5% in the previous quarter.
In other words, the U.S. economy accelerated more than previously believed.
The upgrade was driven mainly by stronger business investment, exports, and government spending.
Corporate profits also improved, rising 0.5%, whereas the previous estimate had shown a decline.
It's only a modest improvement, but an improvement nonetheless.
Looking ahead, the first estimate for second quarter GDP will be released on July 30, giving markets a much clearer picture of where the economy is heading.
This is where everything comes together.
The Fed is looking at an economy growing at 2.1%, stronger than expected, while inflation remains stuck at 3.4%, well above target.
"So what does that mean for interest rates?"
It means something fairly straightforward.
As long as the economy remains resilient and inflation stays elevated, the Fed has no reason to rush into cutting rates.
It can afford to wait.
Recent comments from Fed officials reinforce that message.
At his first meeting as the Fed's new Chair, Kevin Warsh made the central bank's priorities crystal clear:
"This committee will achieve price stability."
Strong words that suggest the fight against inflation is far from over.
So while markets continue trying to predict when rate cuts will begin, some analysts are now openly discussing the possibility of another rate hike instead.
