Why The Fed's Hot Preferred Inflation Report Mattered

Last week, the Commerce Department’s Bureau of Economic Analysis posted the core PCE Price Index rising by 0.2% in May, compared to the previous month. For the year, the index rose to 2.7%.Experts expected the core PCE price index to rise 2.6%.The Federal Reserve has a 2.0% inflation target. Since this is higher than its target, stock markets should not expect an interest rate cut at the July meeting. They will likely announce that they will wait for the economic data to settle further. For example, the Fed needs to see evidence of inflation (via the consumer price index) slowing. It also needs to watch out for labor market conditions getting worse.In the report, personal income fell meaningfully. Consumers have weaker disposable income. Their purchasing power will worsen. They will either have to cut back on spending or borrow to spend at the same rate. Either scenario is negative. Investors should watch out for consumer cyclical firms to pull back.Amazon (AMZN) remains a widely held stock. However, the stock could pull back. Similarly, McDonald’s (MCD) trades at a premium. It does not have an appealing food menu to drive sales. It might rely on value meals to attract customer traffic.