CONFUSED MUCH? If you are not quite sure what to think about the state of the U.S. economy, inflation, the Federal Reserve's strategy and the whipsaw stock market, don't be ashamed. Because pretty much everyone is confused by the economic data these days. A normally obscure but suddenly relevant reading on inflation that came out today — the Personal Consumption Expenditures Price Index, or "PCE" — didn't clear things up much. More on that later. The economic picture remains … muddled, cloudy, mixed, uncertain. Choose your cliche and it probably applies. And a number of things are true at the same time. The unemployment rate is very low, jobs for now remain plentiful and wages are rising pretty sharply. But (and there are a lot of buts) inflation — what stuff costs to buy — remains historically high, wiping away the impact of wage gains and making everyone miserable from the gas pump to the grocery store. The Federal Reserve is bent on bringing down on inflation even if it means forcing a short and shallow recession. It's slightly too much to say Fed Chair Jerome Powell and his colleagues are completely freaked out by the persistent run up in prices. But they are close. And few allegedly strong economies are as widely hated as this one. Just 20 percent of Americans in the latest AP/NORC poll out this week rated the economy as "good" while 79 percent called it "poor." The dismal view crosses party lines. It's not terribly surprising that 90 percent of Republicans dislike the economy under a Democratic president. But 67 percent of Democrats hate it too. That hatred itself could help tip the economy toward recession, but we'll get to that later. Let's get back to that obscure and wonky corner of the economic world, our friend PCE. Wall Street and policymakers always watch this number as it's the Fed's favorite inflation gauge and the most influential indicator in determining the path of interest rate policy. In normal times, ordinary people can safely ignore it. But these are not normal times. And everyone is watching each piece of inflation data very closely. The latest PCE report, covering the month of May , came in very mixed. There was good. There was bad. And there was something for everyone in the political world to craft talking points around. The good stuff (favorable to President Joe Biden and Democrats panicked about the aforementioned poll numbers): The annual rate of so-called headline inflation remained at 6.3 percent in May. That's a very high figure but another data point for those who argue price increases have already peaked and will head down on their own without a big boot kick from the Fed in the form of higher rates. So-called core inflation, which strips out highly volatile food and energy prices, dipped a bit from a 4.9 percent annual rate in April to 4.7 percent in May. Again, still way high. But in line with a general trend lower. Spending on services, after adjusting for inflation, rose 0.3 percent in May from April, another sign that after a couple of years of pandemic-induced stagnation, people are spending again on travel, hotels, bars, restaurants and the like, and not just constantly ordering durable goods (furniture, toaster ovens, etc.) over the Internet. The bad stuff (favorable to Republicans ripping what they call "Biden-flation"): Overall real consumer spending fell 0.4 percent over the month as services spending did not keep up with a big 3.5 percent monthly drop in durable goods, largely a result of lower auto sales. Car makers continue to be plagued by supply chain problems. The dip feeds into fear among economists that consumers — stretched by higher prices and seeing their Covid-era savings evaporate — will finally, truly tighten their wallets and trigger an economic downturn. Consumer spending is around 70 percent of all economic activity. So if it drops a lot … well … that would be quite bad. Republicans like Rep. Kevin Brady (R-Texas), ranking member on the House Ways and Means Committee, leapt on the spending decline to once again rip Biden. Brady called it a "very cruel" economy in an interview with Yahoo Finance. And after rising sharply during Covid, the household savings rate is once again at multidecade lows. The bottom line : The latest inflation report was a bit more good than bad when you fully pick it apart. It should ease a little bit of the Fed's worry, though not a lot of it. The big question for Fed watchers is whether the central bank will raise its target for interest rates by another hefty three quarters of a point in July or back off to a half-point hike. Today's numbers tilt the scale a little toward half a point. But the disconnect between what many numbers tell us about the economy (things are still good!) and how people feel about it (everything stinks!) could itself push us toward recession. For now, Americans are still spending like they believe the economy is OK, no matter what they tell pollsters. But that could easily change. "It could really become a self-fulfilling prophecy if consumer and business sentiment just continues to fall off a cliff," Peter Essele, head of portfolio management for Commonwealth Financial Network, told Nightly. "The numbers across the board — hiring, job openings, manufacturing orders — look really good. But sentiment continues to collapse. And that means a significant recession is definitely a possible outcome here." Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight's author at bwhite@politico.com on Twitter at @morningmoneyben.
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