Inflation remained steady in the month of May, with Core PCE printing at 0.1% month over month, consistent with economist projections. On a year over year basis, core PCE rose 1.2%, slightly below the revised 1.3% rate for April, and well below the Federal Reserve’s 2% target. In a positive sign for the economy, household spending increased 0.9% in May, beating economist expectations and posting the largest gain since 2009. Personal income rose 0.5% last month. The U.S. personal savings rate subsequently fell from 5.4% to 5.1%, as spending outpaced income growth. With the first quarter weather freeze subsiding, Americans are reaching back into their wallets, energizing an economy that has struggled to break out of a slow growth environment. While this spark in consumption will contribute positively to second quarter GDP, inflation remains low and, to our mind, needs to bottom out in order for the Federal Reserve to feel comfortable raising rates later this year. Without an improvement in the PCE measure in the coming months, we believe it will be difficult for Fed to move off the lower bound in the near to medium term.