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SP500BearishEconomicnews

High materiality7/10

Fed inflation surprise strengthens odds of year-end rate hikes, weighing stocks

Jun 25, 2026, 10:32 AM EDT1 sourcesAI-analyzed

Why it may matterVerify against the original reporting

Persistent inflation readings and rising rate-hike probabilities raise discount rates and pressure equity multiples, as seen in prior tightening cycles where higher policy rates tempered earnings multiples and contributed to period-specific market softness.

AI summary

What happened, with direct paths to the underlying reporting

May core PCE rose to 3.4% and headline PCE to 4.1%, signaling persistent inflation and a higher-rate path. Markets price about 82% odds of a December rate increase, with officials hinting at potential hikes this year. The combination could pressure near-term stock valuations as higher discount rates weigh on S&P 500 multiples.

May core PCE rose to 3.4% YoY, highest since Oct 2023.
Headline PCE reached 4.1% in May, above April's 3.8%.
FedWatch shows 82.2% odds of a December rate hike.
Nine of 18 FOMC members favored at least one hike this year.
Gas prices rose nearly 59% YoY, driving CPI strength.

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