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Core PCE Price Index: A Key Indicator for Markets and Policymakers
The Core Personal Consumption Expenditures Price Index (Core PCE Price Index) is an economic indicator released monthly by the Bureau of Economic Analysis (BEA). It measures the change in the price of goods and services purchased by consumers, excluding food and energy. The Core PCE Price Index is considered a more reliable measure of inflation than the Consumer Price Index (CPI) because it reflects changes in consumer spending patterns over time.
The Federal Reserve closely monitors the Core PCE Price Index as it is one of their preferred inflation measures. The Fed uses the Core PCE Price Index to guide its monetary policy decisions, particularly regarding interest rates. If the Core PCE Price Index rises above the Fed's target rate of 2%, it may indicate that the economy is overheating, which could prompt the Fed to raise interest rates to cool off inflation.
The release of the Core PCE Price Index is highly anticipated and has a significant impact on the bond market, US stocks, and futures. For example, on the previous release of the Core PCE Price Index on February 24th, 2023, the Dow Jones Industrial Average (DJIA) moved over 100 points in a 15-minute span. Traders should exercise caution when engaging with the markets during the time of this news release, which is set for Friday, March 31st at 8:30 AM EST.
While the Core PCE Price Index is a widely watched economic indicator, it is important to keep in mind that it is just one piece of the puzzle when it comes to understanding the overall state of the economy. Other economic indicators, such as Gross Domestic Product (GDP), job growth, and consumer sentiment, also play a critical role in shaping investor perceptions and market trends. As such, traders and investors should consider a variety of factors when making investment decisions and not rely solely on any one economic indicator.
