Normal or double? Markets are unsure if the Fed will cut rates by 25 or 50 bps in September, and core PCE – the bank's preferred inflation gauge – will provide some clues. Live coverage.
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Why Core PCE shakes markets
The Personal Consumption Expenditure (PCE) report is released after the parallel Consumer Price Index (CPI) figures, but it still matters – mostly because the Federal Reserve (Fed) watches this figure. The weights of products are updated more frequently in the PCE report.
More specifically, core PCE excludes volatile energy and food prices, making it a better measure of underlying price pressures.
The upcoming release comes after Fed Chair Jerome Powell said that a rate cut is coming in September, in the clearest possible terms. Some weakness in the labor market and falling inflation are behind the upcoming move.
But, by how much will the Fed cut rates? That is where core PCE can help. The faster it falls toward 2%, the Fed's target, the greater the chance for a bigger rate cut of 50 bps, double the standard 25 bps move. A weak number would boost Gold and stocks while weighing on the US Dollar. A strong outcome would do the opposite.
It is essential to note that the release comes ahead of the long Labor Day weekend in the US, with traders scrambling to close positions ahead of the weekend.
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