May headline CPI printed 4.2% annually — the highest in three years — driven by a 3.9% monthly surge in energy prices. Core held at 2.9% year-over-year, but the monthly read came in at 0.2%, below forecast, creating a split signal that the bond market is not buying. TLT dropped to $85.52 today, down 1.04%, and the bearish thesis heading into July 28 is intact.
The last post flagged a simple binary: headline CPI at or above 4% with sticky core seals the July 28 FOMC outcome. May delivered exactly that. The BLS confirmed headline at 4.2% annually — the highest print since April 2023 — with energy the primary accelerant at +3.9% for the month and +23.5% over twelve months. That is not a temporary blip. That is a sustained energy shock now embedding itself in the headline number heading into summer driving season.
Core CPI at 2.9% year-over-year did tick up from April's 2.8%, confirming the acceleration trend. The one offset: monthly core came in at 0.2% versus a 0.3% forecast. Optimists will point to that as evidence underlying pressures are contained. That read is premature. Shelter costs at 3.4% annually remain elevated given their one-third weighting in CPI. One below-consensus monthly core print does not break a trend — it introduces noise into it.
The labor market is providing no relief valve. May payrolls came in at 172,000 with 93,000 in upward revisions to prior months. The unemployment rate held at 4.3%. Those are not recessionary numbers. A Fed looking for cover to cut — labor market softness — is not finding it in this data. The economy is running warm enough to keep inflation elevated and cool enough to avoid the kind of break that forces the Fed's hand from the growth side.
TLT is at $85.52 today, down 1.04% on the session. The YTD return is essentially flat at +0.12%, which tells you the entire year's worth of bond market positioning has been a grind with no resolution. The resolution comes July 28. With headline CPI confirmed above 4%, the median dot already at 3.8%, and Warsh running a stripped-down statement regime, the probability of a hawkish hold — or language that removes any residual cut expectation — has risen materially. The only clean exit from this bearish setup was a sub-3.8% headline with decelerating core. May printed 4.2%. That exit is closed.
One risk worth naming: the monthly core print at 0.2% keeps alive the argument that energy is doing all the work and underlying disinflation is intact. If June CPI — due mid-July — shows another 0.2% monthly core alongside energy rolling over, the narrative shifts fast. Consumer inflation expectations also edged down to 3.5% in May from 3.6% in April. That is a small move, but it signals the public is not yet in a full inflation-panic feedback loop. Warsh could use that data point as cover for neutral language. Watch the June CPI print with the same discipline as the May read.