Steve Moore went on Kudlow Thursday night and claimed the five-year break-even inflation rate, the bond market’s cleanest read on where prices are heading, has collapsed. “It’s now at 2.2%, Larry. A month ago it was well over 3.5%,” Moore told Larry Kudlow on Fox Business. He credited Fed Chair Kevin Warsh’s recent messaging on price stability with anchoring expectations almost overnight. His thesis is straightforward. Inflation is about to become yesterday’s story, and the bond market is already pricing it.
That is a big swing in a short window. The question for anyone watching mortgage rates, Treasury yields, or the Fed’s next move is whether the market actually agrees with Moore, or whether he is reading the tea leaves a little hot.
The one number that matters
The five-year break-even is the difference between the nominal five-year Treasury yield and the five-year TIPS yield. It is the market’s bet on average inflation over the next half decade, and Moore is right that it is the cleanest single read out there. “That is the best market prediction of where inflation is headed,” he said.
The recent reading sits at 1.92% as of June 25, with an intra-month range of 1.64% to 2.03%. Call it the low twos. That is a world below the 3.5% Moore says prevailed a month ago. The ten-year Treasury yield has cooperated, drifting from 4.56% on June 8 to 4.4% on June 25. Long-dated TIPS yields have stayed anchored, which is what you want to see if the market truly believes the Fed has the wheel.
What the actual inflation prints are doing
The awkward wrinkle is that realized inflation has not gotten the memo yet. Headline PCE came in at 4.07% year over year in May 2026, up from 2.8% in February. Core PCE sits at 3.41%, a more modest tick up.
Almost all of the acceleration is energy. The energy component spiked 24.26% year over year in May, with a 4.03% month-over-month jump on top of an 11.58% surge in March. Strip that out and the picture is much closer to Moore’s. Food inflation has decelerated to 2.38%.
Services, the stickiest piece, is sitting in the 3.5% to 3.8% range and has not budged much. Moore’s bet is that the energy spike rolls off, the bond market sees through it, and the headline number reconverges to where break-evens are already trading.
The durable goods tell
Financial journalist John Carney flagged broad-based industrial strength. “Machinery was really strong. Primary metals up 3%. That is people investing in America,” he said.
The consumer spending data backs that up. Durable goods PCE climbed to $2,374.4 billion (annualized) in May, up from $2,247.0 billion a year earlier. Recreational goods alone moved from $690.0 billion to $760.7 billion year over year.
Total PCE punched through $22 trillion at an annualized rate. Resilient consumer, expanding industrial base, falling break-evens. If you are Warsh, that is the trifecta you want on the board.
What to watch next
Moore’s bigger claim is the policy implication. “The Fed’s not going to raise rates at all. Inflation is going away quite rapidly,” he said. The market has not fully bought that yet. The two-year Treasury at 4.09% is still pricing some patience from the Fed. But if the next PCE print shows energy moderating and core stays put, the gap between what the bond market believes and what the cash market is paying could close fast. Mortgage applicants would be the first to notice.
The number to keep an eye on is the five-year break-even. If it stays anchored near 2%, Warsh has done his job, and Moore gets to say he called it. If it backs up above 2.5%, the energy story is no longer just an energy story, and the Fed’s communication strategy gets tested in public. You can read the Fed’s official price stability framework directly on the Federal Reserve’s monetary policy page.
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