An Economist Says Inflation Is About to Become ‘Yesterday's Story' — Here's the One Number He's Watching

• The five-year break-even inflation rate collapsed from 3.5% to 1.92% as of June 25, 2026, signaling the bond market expects inflation to average around 2% over the next five years
• Headline PCE inflation reached 4.07% year-over-year in May, driven almost entirely by a 24.26% surge in energy costs, while core PCE sits at 3.41% and food inflation has slowed to 2.38%
• The two-year Treasury yield at 4.09% suggests markets still expect the Fed to maintain patience on rate policy, though Moore predicts no rate hikes if energy moderates and inflation converges toward break-even levels

Market Summary: Inflation Outlook and Fed Policy

Key Thesis:

Economist Steve Moore claims inflation is becoming "yesterday's story," citing a dramatic collapse in the five-year break-even inflation rate as his primary indicator. The rate has fallen from over 3.5% to 1.92% as of June 25, suggesting bond markets believe inflation is contained.

Critical Data Points:

• Five-year break-even inflation rate: 1.92% (down from 3.5% a month prior)
• Ten-year Treasury yield: declined from 4.56% (June 8) to 4.4% (June 25)
• Headline PCE: 4.07% year-over-year (May 2026), up from 2.8% in February
• Core PCE: 3.41%
• Energy component spike: 24.26% year-over-year, driving headline inflation
• Food inflation: decelerated to 2.38%
• Two-year Treasury: 4.09%

Market Context:

The disconnect between falling break-even rates and elevated realized inflation stems primarily from energy price volatility. Energy jumped 4.03% month-over-month in May, following an 11.58% surge in March. Moore argues that stripping out energy shows inflation closer to the Fed's target.

Consumer spending remains resilient, with total PCE exceeding $22 trillion annualized and durable goods climbing to $2,374.4 billion.

Policy Implications:

Moore predicts no Fed rate hikes, crediting Chair Kevin Warsh's messaging with anchoring inflation expectations. However, contradicting views exist—Goldman Sachs and JPMorgan executives have suggested rate hikes remain possible as soon as July.

What to Watch:

The five-year break-even rate remains the key metric. Stability near 2% validates Moore's thesis; a move above 2.5% would signal broader inflation concerns beyond energy.