Food for thought: PCE Exceeds Expectations

The PCE [Personal Consumption Expenditures Index] has exceeded expectations, showing a year-over-year increase of 5.4% for the headline and 4.7% for the core, as well as a month-over-month increase of 0.6% for both the headline and core. Additionally, consumer spending increased by 1.8%, while personal income increased by 0.6% instead of 1%. However, the initial market reaction is unfavorable.

The PCE is the preferred inflation gauge of the Fed, and the data is used to help guide monetary policy decisions, including interest rates.

The higher-than-expected PCE numbers, particularly the year-over-year increase of 5.4% for the headline and 4.7% for the core, suggest that inflation may be increasing faster than anticipated. This can cause concern among traders because higher inflation can lead to higher borrowing costs, lower consumer purchasing power, and potentially slower economic growth. In addition, the lower-than-expected personal income growth suggests that consumers may have less money to spend in the future, which could further impact economic growth.

How will the Fed react? Keep a lookout for Fed speeches.