Market Pulse is a recurring series that aims to provide some useful insights for my savings and investments based on simple tools and data that I reference every month.
At this point, everyone must be thinking about the inevitable. Is it truly a matter of when, not if, the rate cuts will happen?
Whether you are a seasoned investor or just trying to make sense of your savings account, the financial winds are shifting, and you’ll want to know which way they’re blowing.
If you ask me, my stand is the same as always — nobody knows anything.
Table of Contents1. Inflation & PCE Index
Although the Consumer Price Index (CPI) is widely watched, the Federal Reserve’s preferred inflation gauge is actually the Personal Consumption Expenditures (PCE) index.
PCE has a broader scopePCE better reflects how consumers change what they buy to account for rising prices
Although both are price indexes, CPI (U.S. Bureau of Labor Statistics) and PCE (Bureau of Economic Analysis) are calculated by different federal agencies using different formulas, weightages, and scopes.
The Core PCE Index excludes energy and food prices, which are volatile categories.
Why is the exclusion of energy and food prices important? When the Fed is looking at inflation, it is less concerned with what is happening to the household’s living standard.
Instead, they want to know the macroeconomic inflationary pressure that is building up.
The Fed uses the PCE index as its 2% inflation target benchmark.
Federal Reserve inflation target (12-month target) → 2.0%PCE Index (Jun 2024) → 2.5%PCE Index excluding food and energy (Jun 2024) → 2.6%
The next release of PCE data will be at the end of the month on August 30, 2024.
2. Interest Rate & Fed Rate Hike
The Federal Open Market Committee (FOMC) is the monetary policy-making body of the Federal Reserve System,
