Why did the Fed prefer PCE over CPI as an inflation benchmark?

Why did the Fed prefer PCE over CPI as an inflation benchmark?

Although inflation has fallen to its lowest level, the Fed appears to have already planned for another rate hike at its upcoming meeting on July 25-26.

“There is no doubt that the good news on inflation is good news indeed, it’s really too early to declare victory on inflation.” San Francisco Federal Reserve Bank President

Personal Consumption Expenditures (PCE) price index covers a broader range of goods and services compared to the CPI.

It includes personal consumption expenditures by households, businesses, and the government. This comprehensive coverage provides a more comprehensive view of overall economic activity and inflationary pressures.

The CPI uses fixed expenditure weights, which assumes that consumer spending patterns remain constant over time. In contrast, PCE provides a more sensitive measurement of inflation.

In a recent article, we connected the dots to help explain the factors contributing to the current high-interest rate environment and bank runs. We also provided insights into the risks and future opportunities that lie ahead using the 'Quantamental' approach.

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可能是包含下列内容的图片：上面的文字是“FRED Personal Consumption Expenditures (PCE) Excluding Food and Energy (chain-type price index) 6 5 も Chne 2 w 3 2002 2004 2006 Source: 2008 Bureau 2010 2012 Economic Analysis 2014 2016 2018 2020 2022 myf.red/g/172mr myf.red/g/”

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