Macro
PCE
PCE differs from CPI in how it weights spending and how it accounts for consumers substituting cheaper goods when prices rise. Because it captures a broader range of expenditures, the Fed treats core PCE as its primary inflation target.
The Fed aims for PCE inflation to average around 2% over time. Sustained readings above that level tend to keep policy restrictive, while readings near target give the central bank room to ease.
Investors who want to anticipate Fed moves often watch PCE even more closely than CPI, since it maps more directly onto the central bank's stated objective.
Example
The Fed frequently references core PCE running near 2% as the condition it needs to see before cutting rates.
PCE — FAQ
What is PCE?
The Personal Consumption Expenditures (PCE) price index measures inflation across the goods and services consumed by households and is the Federal Reserve's preferred inflation gauge.
Can you give an example of PCE?
The Fed frequently references core PCE running near 2% as the condition it needs to see before cutting rates.
The term is free. The call is membership.
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