Friday’s Personal Consumption Expenditures (PCE) report may well prove the next economic indicator turned stock market crash catalyst. What do you need to know about this week’s all-important inflation gauge?
This time around, the PCE has some added pressure to perform. The Federal Reserve-preferred inflation measurement, the PCE price index, shows changes in the prices of goods and services purchased in the U.S. Considered a more accurate price measure than the popular Consumer Price Index (CPI), the results of this Friday’s PCE will likely lay the groundwork for the Fed’s next rate hike decision.
If you recall, the PCE has been on something of a roller coaster. While it was once steadily falling month-to-month, prices rose in January, elevating fears of a brutal monetary response. Indeed, on an annual basis, the PCE fell from 6.1% last October to 5.6% in November, to 5.3% in December, only to climb back up to 5.4% in January 2023.
Analysts and economists are hoping for a return to falling prices in February. In that regard, if prices dip even slightly, it would be considered a win for both the Fed and the markets. On the flip side, a sell-off remains a distinct possibility if prices hold or increase.
Why This Week’s PCE Could Be a Stock Market Crash Catalyst
Just a week out from the Federal Reserve’s ninth rate hike this cycle, all eyes are on inflation. The Fed made something of an implicit announcement with its most recent rate increase: lowering prices is more important than just about anything else.
Indeed, confronted by a sudden, startling banking crisis, pushing recession fears to new highs, the Fed’s choice to continue with its hawkish agenda informs the public just how committed the central bank is to lowering prices. Given the Fed’s dramatic statement, the importance of the PCE is only emphasized.
Current expectations are for a mild pullback in prices, from 5.4% to 5.3% annually, the same level reached in December. However, core inflation, which excludes volatile components like food and energy, is expected to increase by 0.2%.
Whether the projections come to light remains to be seen. Either way, Wall Street will be keeping a close on the PCE this Friday.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
