FOMC T-7 days: Cleveland Fed estimates and CPI vs PCE explained
Quote444 words
Looks at cooling inflation and rising unemployment ahead of the first rate cut in 2.5 years, and explains the difference between CPI, core CPI, PCE and core PCE and why the Fed prefers core PCE.
Key claims
CME FedWatch priced a 25bps cut at 65% vs 35% for 50bps
Cleveland Fed expects the lowest CPI increase since Feb 2021
Core PCE is seen about 0.2% below Fed June estimates
๐-๐ ๐๐๐ฒ๐ฌ ๐ญ๐จ ๐ญ๐ก๐ ๐
๐๐๐ ๐๐๐๐ญ๐ข๐ง๐ ๐๐ง๐ ๐๐ฌ๐ญ ๐๐๐ญ๐ ๐๐ฎ๐ญ๐ฌ ๐ข๐ง ๐.๐ ๐๐๐๐ซ๐ฌ โคต๏ธ
The Cleveland Fed is estimating the lowest CPI increase since February 2021, signalling that inflation is easing significantly.
This would put core PCE index, the Fed's preferred measure of inflation, coming in around 0.2% below the Fedโs June estimates for year-end.
Meanwhile, the unemployment rate (UR) is approximately 0.2% higher than what the Fed projected.
With only four months left in the year, these numbers reflect weakening inflationary pressures and rising unemployment, which could justify a rate cut to stimulate the economy.
The question is, whether the Fed will cut rates by 25bps or 50bps, as there is some concern about the optics around a rate cut.
A rate cut could be perceived as an admission of a policy mistake (i.e., tightening too much earlier), which the Fed may want to avoid, even though the data (slowing inflation and rising unemployment) supports the case for easing monetary policy, potentially even at 50bps.
That's why CME's Fed Watch estimates the the probability of a 25bps rate cut at 65% vs. 35% for a 50bps cut.
๐๐จ ๐๐ฏ๐จ๐ข๐ ๐๐จ๐ง๐๐ฎ๐ฌ๐ข๐จ๐ง, ๐ฅ๐๐ญ ๐ฆ๐ ๐๐ข๐๐๐๐ซ๐๐ง๐ญ๐ข๐๐ญ๐ ๐๐๐ญ๐ฐ๐๐๐ง ๐๐๐ ๐๐ง๐ ๐๐๐. โคต๏ธ
โค ๐๐ฃ๐ (๐๐ผ๐ป๐๐๐บ๐ฒ๐ฟ ๐ฃ๐ฟ๐ถ๐ฐ๐ฒ ๐๐ป๐ฑ๐ฒ๐
): ๐ฌ๐พ๐บ๐๐๐๐พ๐ ๐๐๐พ ๐๐๐๐ผ๐พ ๐ผ๐๐บ๐๐๐พ๐ ๐๐ฟ ๐บ ๐ฟ๐๐๐พ๐ฝ ๐ป๐บ๐๐๐พ๐ ๐๐ฟ ๐๐๐๐ฝ๐ ๐บ๐๐ฝ ๐๐พ๐๐๐๐ผ๐พ๐ ๐๐๐๐ผ๐๐บ๐๐พ๐ฝ ๐ป๐ ๐๐๐ป๐บ๐ ๐ผ๐๐๐๐๐๐พ๐๐. ๐จ๐ ๐๐ ๐ผ๐บ๐
๐ผ๐๐
๐บ๐๐พ๐ฝ ๐ป๐ ๐๐๐พ ๐ก๐๐๐พ๐บ๐ ๐๐ฟ ๐ซ๐บ๐ป๐๐ ๐ฒ๐๐บ๐๐๐๐๐๐ผ๐ (๐ก๐ซ๐ฒ) ๐บ๐๐ฝ ๐๐๐๐พ๐ ๐๐๐๐พ ๐๐พ๐๐๐๐ ๐๐ ๐ผ๐บ๐๐พ๐๐๐๐๐พ๐ ๐
๐๐๐พ ๐๐๐๐๐๐๐.
โค ๐ฃ๐๐ (๐ฃ๐ฒ๐ฟ๐๐ผ๐ป๐ฎ๐น ๐๐ผ๐ป๐๐๐บ๐ฝ๐๐ถ๐ผ๐ป ๐๐
๐ฝ๐ฒ๐ป๐ฑ๐ถ๐๐๐ฟ๐ฒ๐): ๐ณ๐๐บ๐ผ๐๐ ๐ป๐๐๐บ๐ฝ๐พ๐ ๐๐๐พ๐๐ฝ๐๐๐ ๐บ๐ผ๐๐๐๐ ๐บ๐
๐
๐ด.๐ฒ. ๐ผ๐๐๐๐๐๐พ๐๐ ๐บ๐๐ฝ ๐ผ๐บ๐๐๐๐๐พ๐ ๐ผ๐๐บ๐๐๐พ๐ ๐๐ ๐ผ๐๐๐๐๐๐๐๐๐๐ ๐๐บ๐๐๐พ๐๐๐ (๐พ.๐., ๐๐ฟ ๐๐พ๐๐๐
๐พ ๐๐๐๐๐ผ๐ ๐๐ ๐ผ๐๐พ๐บ๐๐พ๐ ๐๐๐๐ฝ๐๐ผ๐๐). ๐ข๐บ๐
๐ผ๐๐
๐บ๐๐พ๐ฝ ๐ป๐ ๐๐๐พ ๐ก๐๐๐พ๐บ๐ ๐๐ฟ ๐ค๐ผ๐๐๐๐๐๐ผ ๐ ๐๐บ๐
๐๐๐๐ (๐ก๐ค๐ ), ๐๐ ๐บ๐ฝ๐๐๐๐๐ ๐ฟ๐๐ ๐๐๐ป๐๐๐๐๐๐๐๐๐๐ ๐๐ ๐ผ๐๐๐๐๐๐พ๐ ๐ป๐พ๐๐บ๐๐๐๐.
The term "core" in both Core CPI and Core PCE refers to the exclusion of two highly volatile categories: food and energy.
โค ๐๐ผ๐ฟ๐ฒ ๐๐ฃ๐: ๐ค๐๐ผ๐
๐๐ฝ๐พ๐ ๐ฟ๐๐๐ฝ ๐บ๐๐ฝ ๐พ๐๐พ๐๐๐ ๐๐ ๐๐๐๐๐๐ฝ๐พ ๐บ ๐ผ๐
๐พ๐บ๐๐พ๐ ๐๐๐พ๐ ๐๐ฟ ๐๐๐ฝ๐พ๐๐
๐๐๐๐ ๐๐๐ฟ๐
๐บ๐๐๐๐ ๐๐๐พ๐๐ฝ๐. ๐จ๐ ๐ฟ๐๐ผ๐๐๐พ๐ ๐๐ ๐บ ๐ฟ๐๐๐พ๐ฝ ๐ป๐บ๐๐๐พ๐, ๐๐บ๐๐๐๐ ๐๐ ๐๐๐๐พ ๐๐๐
๐บ๐๐๐
๐พ ๐ฝ๐๐พ ๐๐ ๐๐๐ ๐๐พ๐บ๐๐ ๐๐พ๐๐๐๐๐๐๐ ๐๐ ๐๐๐๐๐๐๐ ๐ผ๐๐๐๐.
โค ๐๐ผ๐ฟ๐ฒ ๐ฃ๐๐: ๐ ๐
๐๐ ๐พ๐๐ผ๐
๐๐ฝ๐พ๐ ๐ฟ๐๐๐ฝ ๐บ๐๐ฝ ๐พ๐๐พ๐๐๐, ๐ป๐๐ ๐๐ ๐๐๐พ๐ ๐บ ๐๐๐๐พ ๐ฟ๐
๐พ๐๐๐ป๐
๐พ ๐ป๐บ๐๐๐พ๐ ๐บ๐๐ฝ ๐บ๐ฝ๐๐๐๐๐ ๐ฟ๐๐ ๐๐๐๐ฟ๐๐ ๐๐ ๐ผ๐๐๐๐๐๐พ๐ ๐ผ๐๐๐๐ผ๐พ๐, ๐
๐๐๐พ ๐๐๐๐๐ผ๐๐๐๐ ๐๐ ๐ผ๐๐พ๐บ๐๐พ๐ ๐๐๐๐ฝ๐, ๐๐๐๐๐๐ ๐๐ ๐บ ๐ป๐๐๐บ๐ฝ๐พ๐, ๐๐๐๐พ ๐๐๐บ๐ป๐
๐พ ๐๐พ๐ฟ๐
๐พ๐ผ๐๐๐๐ ๐๐ฟ ๐๐๐ฟ๐
๐บ๐๐๐๐.
The Fed prefers Core PCE as a metric because of its adaptability and better representation of consumer behaviour.
While CPI and PCE often move in the same direction, PCE typically registers slightly lower than CPI due to its broader scope and flexibility.
So if CPI data suggests easing inflation, analysts can infer a similar trend in PCE, making it possible to estimate PCE from CPI, though adjustments are needed to account for their differences.
QUOTING @zerokn0wledge_
๐๐ฃ๐ ๐ฑ๐ฎ๐๐ฎ in the US is dropping today and is highly anticipated ahead of the FOMC meeting next week and the first expected rate cuts since March 2022. ๐ง๐;๐๐ฅ ๐ผ๐ป ๐๐ต๐ฎ๐ ๐๐ผ ๐ฒ๐ ๐ฝ๐ฒ๐ฐ๐. โคต๏ธ โค ๐ ๐ผ๐ป๐๐ต๐น๐ ๐๐ฃ๐ (๐๐ผ๐ป๐๐๐บ๐ฒ๐ฟ ๐ฃ๐ฟ๐ถ๐ฐ๐ฒ ๐๐ป๐ฑ๐ฒ๐ ): ๐ณ๐๐พ ๐๐พ๐บ๐ฝ๐ ๐๐๐พ ๐ข๐ฏ๐จ ๐๐ ๐ฟ๐๐๐พ๐ผ๐บ๐๐ ๐๐ ๐๐๐๐พ ๐ป๐ ๐ข.๐ค% ๐๐ ๐ ๐๐๐๐๐, ๐๐๐พ ๐๐บ
๐๐ฃ๐ ๐ฑ๐ฎ๐๐ฎ in the US is dropping today and is highly anticipated ahead of the FOMC meeting next week and the first expected rate cuts since March 2022. ๐ง๐;๐๐ฅ ๐ผ๐ป ๐๐ต๐ฎ๐ ๐๐ผ ๐ฒ๐ ๐ฝ๐ฒ๐ฐ๐. โคต๏ธ โค ๐ ๐ผ๐ป๐๐ต๐น๐ ๐๐ฃ๐ (๐๐ผ๐ป๐๐๐บ๐ฒ๐ฟ ๐ฃ๐ฟ๐ถ๐ฐ๐ฒ ๐๐ป๐ฑ๐ฒ๐ ): ๐ณ๐๐พ ๐๐พ๐บ๐ฝ๐ ๐๐๐พ ๐ข๐ฏ๐จ ๐๐ ๐ฟ๐๐๐พ๐ผ๐บ๐๐ ๐๐ ๐๐๐๐พ ๐ป๐ ๐ข.๐ค% ๐๐ ๐ ๐๐๐๐๐, ๐๐๐พ ๐๐บ
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