PCE hype now rarely matches market moves

We’ve reached that point in the month where seemingly every second market headline is about core PCE: the Fed’s preferred inflation gauge, a potential game-changer for rates, the US dollar and risk assets.

The problem is that PCE just doesn’t generate the kind of volatility those headlines suggest. Over the past 12 months, CPI produced the largest median 30-minute move across US 2-year and 10-year Treasury yields, the dollar index, S&P 500 futures and gold.

PCE still matters for Federal Reserve policy, but by the time it arrives, economists have already pulled a lot of the useful information from CPI and PPI released earlier in the month. The mapping has become so refined that major banks are now publishing core PCE estimates to two decimal places before the official number lands.

Traders should also remember that PCE may not remain the Fed’s preferred inflation measure for long, with Chair Kevin Warsh’s task forces reviewing both the data policymakers use and the broader inflation framework.

In the video below, I look at which US inflation report actually moves markets, how that has changed over time, and why PCE may deserve a little less hype than it gets.