Rick Santelli: Core PCE Hits 3.3% as Durable Goods Surge 7.9% in April

• Quarterly core PCE jumped to 4.4%, the hottest reading since Q1 2023, forcing the Fed to slow-walk anticipated rate cuts despite markets pricing in roughly 80 basis points of cuts through 2026
• Durable goods orders rose 7.9% in April versus 4% expected, with ex-transportation orders at 1.1% (double expectations), signaling continued business investment even as consumer spending weakens
• Personal income growth came in flat at zero while the household savings rate compressed from 6.2% in Q1 2024 to 3.7% in Q1 2026, indicating consumers are funding spending from buffers rather than income gains

Market Summary: Core PCE and Durable Goods Data Signal Complex Economic Picture

Key Economic Data

Inflation Metrics:

• Core PCE rose to 3.3% year-over-year in April 2026, matching consensus but climbing from 2.61% in April 2025
• Quarterly core PCE jumped to 4.4%, the hottest reading since Q1 2023, exceeding expectations
• Services inflation remains sticky at 3.49% year-over-year

Durable Goods:

• Headline durable goods orders surged 7.9% in April, crushing the 4% expectation and marking the strongest reading since May 2025's 16%+ print
• Ex-transportation orders rose 1.1%, doubling the expected 0.5%

Consumer Weakness:

• Personal income growth flat at 0%
• Q1 GDP revised down to 1.6% from initial 2% estimate
• Consumer spending component fell from 1.6% to 1.4%
• Household savings rate compressed from 6.2% (Q1 2024) to 3.7% (Q1 2026)

Market Implications

The mixed data complicates Federal Reserve rate-cut expectations. Goldman Sachs projects 50 basis points of cuts to 3-3.25% in 2026, while Vanguard sees limited scope for cuts below 3.5% neutral rate given sticky inflation.

Sector Outlook:

JP Morgan favors industrials, utilities, and financials, citing resilient earnings and deregulation catalysts. The strong durable goods print supports industrial capex themes. Rate-sensitive sectors like housing remain under pressure.

Investment Strategy:

Analysts recommend avoiding big directional Fed bets, favoring long industrial capital expenditure positions while remaining cautious on consumer-dependent sectors as households deplete savings buffers.