Higher energy costs lifted U.S. consumer inflation to its highest level since April 2023, as investors remain on watch for a possible hawkish pivot at the Federal Reserve. The consumer price index was up 4.2% year-over-year in May, up from 3.8% the month before, the Labor Department said on Wednesday. Inflation was softer when excluding food and energy categories. Core CPI increased 2.9% versus 2.8% previously. The news came as Fed policymakers prepare to meet next week for their first confab since Kevin Warsh took over as the central bank’s chair. Market participants anticipate no change in the Fed’s policy rate but have increased expectations of late that officials will hike rates later this year to counter energy-driven inflation, according to the CME Group’s FedWatch Tool. Along with its rate decision on Wednesday, the Fed will release economic projections that might offer fresh clues on the outlook. The European Central Bank raised interest rates by 25 basis points on Thursday amid price pressures stemming from the energy shock.

Investors also will be watching SpaceX’s stock market debut this Friday, when shares in the company will trade publicly for the first time. The company’s IPO could be the largest in history. Meanwhile, OpenAI filed regulatory paperwork on Monday expressing its intention to go public, potentially setting up another mammoth IPO for 2026. Anthropic said last week it submitted its own draft IPO filing to the SEC.

Stock prices were volatile around midweek, as the technology sector came under pressure and the S&P 500 pulled back from an all-time high. A rebound in U.S. labor demand, resilient economic activity overall, and a renewed focus on inflation risks could be a recipe for Fed rate hikes in the near term — a hawkish shift that might make it easier to cut rates in the future. PGIM’s 2026 Mid-Year Market Outlook takes a closer look at the path ahead for central banks, as well as investment themes and their implications across asset classes.