PCE Price Index
The PCE price index is the Federal Reserve's preferred inflation gauge, and the one its 2% target is officially measured against.
PCE is the Federal Reserve's preferred inflation gauge, the one its 2% target is officially measured against. Core PCE is the version markets watch most closely.
The Personal Consumption Expenditures (PCE) price index measures price changes in consumer goods and services, calculated by the US Bureau of Economic Analysis. The Federal Reserve officially targets PCE inflation at 2%, which makes it the inflation measure that actually drives US rate decisions. Core PCE, which strips out food and energy, is the figure markets watch most. PCE tends to run slightly cooler than CPI because of different methodology and coverage.
How It Works
- Broader coverage than CPI, including spending patterns that shift as prices change
- Published monthly by the US Bureau of Economic Analysis
- Core PCE excludes food and energy
Trading Tips
PCE moves matter most when they diverge from CPI, forcing the Fed to explain which gauge it trusts
Watch the monthly core rate: 0.2% or less supports steady policy, 0.3%+ revives hike talk
PCE Price Index Example
Say PCE prints 2.8% against 2.6% expected while CPI ran hot a week earlier. The Fed preferred gauge confirms the scare: rate-cut bets slide from three to one, yields climb, and the dollar rallies into the next FOMC.
How Traders Use PCE Price Index
Weight PCE above CPI for Fed decisions: it is the number the committee targets. Core PCE especially. Calendar it monthly and treat surprises as direct repricing of the rate path.
Related Terms
Sources
- US Bureau of Economic AnalysisOfficial PCE data
Put Your Knowledge Into Practice
Compare regulated brokers and find the best one for your trading style.