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Core PCE and core CPI diverge as inflation stays above target
Core PCE runs at 3.3% and core CPI at 2.5%, underscoring why the Fed is focused on core PCE when judging progress toward its 2% goal.
Inflation is still running above the Federal Reserve’s 2% target, with two widely watched measures showing different readings. The core Personal Consumption Expenditures (PCE) price gauge stands at 3.3%, while core CPI is at 2.5, according to ETF Trends. The Fed uses PCE data as its primary inflation gauge and emphasizes “core” measures that exclude food and energy, which it says are more volatile.
ETF Trends also notes that policymakers look at multiple core inflation definitions to identify underlying trends in prices. Core measures commonly remove items like food and energy because a large move in one period does not necessarily carry into the next in the same direction, even though food and energy remain important to household budgets.
The piece places the readings in the context of the Fed’s most recent meeting, where the Federal Reserve kept the federal funds rate at 3.50% to 3.75%. That decision maintained the benchmark rate at its lowest level since November 2022 for a fifth straight meeting, as policymakers acknowledged inflation remains elevated, in part due to supply shocks including energy.
Looking ahead, the Fed will meet again in September, where ETF Trends says a rate increase is expected for the first time this year. At the time of writing, the CME FedWatch Tool showed a 62% likelihood the Fed holds rates steady versus a 38% chance of a 25 basis point hike.