PCE price index
personal consumption expenditures · PCE inflation · PCE
The PCE price index measures price changes across all spending by and on behalf of US households, and it is the measure the Fed uses for its 2% inflation target.
In plain terms
Where the CPI tracks what households buy directly, PCE casts a wider net, including spending made on households' behalf, such as employer-paid health insurance. It also adjusts faster when people switch from pricier goods to cheaper ones, so it usually runs a bit below the CPI. The Bureau of Economic Analysis (BEA) publishes it near the end of each month.
Why it matters
Since 2012 the Fed has defined its 2% inflation goal in terms of PCE. Core PCE, which excludes food and energy, is one of the numbers the Fed watches most closely. Because the CPI comes out first, markets estimate PCE in advance and react to any surprise on release day.
How it connects to markets
- Core PCE above expectations: fewer expected cuts, so yields and the dollar tend to rise and risk assets come under pressure
- Below expectations: more expected cuts, lower yields, usually supportive for risk assets