[GUEST ACCESS MODE: Data is scrambled or limited to provide examples. Make requests using your API key to unlock full data. Check https://lunarcrush.ai/auth for authentication information.]  Consensus Media [@ConsensusGurus](/creator/twitter/ConsensusGurus) on x 33.4K followers Created: 2025-06-27 12:38:08 UTC Why is PCE the Fed's Preferred Inflation Measure? The Personal Consumption Expenditures (PCE) price index is the Federal Reserve's preferred inflation measure for several reasons: Broader Scope: PCE captures a wider range of consumer spending, including goods and services purchased directly by households and those paid on their behalf (e.g., employer-provided healthcare). This makes it more comprehensive than the Consumer Price Index (CPI), which focuses on out-of-pocket expenses. Dynamic Weighting: PCE uses a chain-weighted formula, adjusting the basket of goods and services based on changing consumer behavior over time. CPI, by contrast, uses a fixed basket, which may not reflect shifts in spending patterns as accurately. Lower Volatility: PCE tends to be less volatile than CPI because it accounts for substitution effects (consumers switching to cheaper alternatives when prices rise) and includes broader data sources, smoothing out short-term price fluctuations. Alignment with Economic Models: PCE aligns better with the Fed’s macroeconomic models and its dual mandate of price stability and maximum employment, as it reflects economy-wide consumption trends more accurately. Incorporates Third-Party Data: PCE includes data from businesses and government sources, not just consumer surveys, making it less susceptible to sampling errors compared to CPI. The Fed uses the core PCE index (excluding volatile food and energy prices) to gauge underlying inflation trends, guiding monetary policy decisions like interest rate adjustments. While CPI is more familiar to the public, PCE’s comprehensive and flexible nature makes it better suited for the Fed’s policy analysis. XXXXX engagements  **Related Topics** [coins healthcare](/topic/coins-healthcare) [inflation](/topic/inflation) [Post Link](https://x.com/ConsensusGurus/status/1938577589095878785)
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Consensus Media @ConsensusGurus on x 33.4K followers
Created: 2025-06-27 12:38:08 UTC
Why is PCE the Fed's Preferred Inflation Measure?
The Personal Consumption Expenditures (PCE) price index is the Federal Reserve's preferred inflation measure for several reasons:
Broader Scope: PCE captures a wider range of consumer spending, including goods and services purchased directly by households and those paid on their behalf (e.g., employer-provided healthcare). This makes it more comprehensive than the Consumer Price Index (CPI), which focuses on out-of-pocket expenses.
Dynamic Weighting: PCE uses a chain-weighted formula, adjusting the basket of goods and services based on changing consumer behavior over time. CPI, by contrast, uses a fixed basket, which may not reflect shifts in spending patterns as accurately.
Lower Volatility: PCE tends to be less volatile than CPI because it accounts for substitution effects (consumers switching to cheaper alternatives when prices rise) and includes broader data sources, smoothing out short-term price fluctuations.
Alignment with Economic Models: PCE aligns better with the Fed’s macroeconomic models and its dual mandate of price stability and maximum employment, as it reflects economy-wide consumption trends more accurately.
Incorporates Third-Party Data: PCE includes data from businesses and government sources, not just consumer surveys, making it less susceptible to sampling errors compared to CPI.
The Fed uses the core PCE index (excluding volatile food and energy prices) to gauge underlying inflation trends, guiding monetary policy decisions like interest rate adjustments. While CPI is more familiar to the public, PCE’s comprehensive and flexible nature makes it better suited for the Fed’s policy analysis.
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Related Topics coins healthcare inflation