PCE (Personal Consumption Expenditures)

PCE is the inflation index the Fed actually uses to set its 2% target. While CPI gets all the press, the Fed prefers PCE because it adjusts for changing consumer behavior — when prices rise, people substitute cheaper goods, and PCE captures that. CPI assumes a fixed basket; PCE updates the basket dynamically. Core PCE (excluding food and energy) is the single most-watched inflation number for FOMC decisions. Strong core PCE = Fed likely to stay hawkish. Soft core PCE = Fed likely to cut rates. The Fed has stated repeatedly that core PCE is their primary inflation reference. PCE is released monthly, typically the last week of the month. It's released about 2 weeks after CPI — by the time PCE comes out, the market has usually already digested CPI, but PCE can still cause significant moves if it diverges from CPI's signal.