What Did Friday’s PCE Report Show? (And Why It’s Important)

Inflation rose in January, which could push the Fed to continue hiking rates, potentially impacting the crypto market. According to the Bureau of Economic Analysis (BEA), a U.S. government agency, the Personal Consumption Expenditure (PCE) Price Index increased by 0.6%, up 4.7% from a year ago. 

The Personal Income and Outlays report, also known as the Personal Income and Consumption report, is a monthly economic report published by the Bureau of Economic Analysis (BEA) in the United States. It provides valuable information on the income and spending patterns of individuals, households, and the overall economy.

The report shows several key indicators, including:

1. Personal income: This measures the total income received by individuals from all sources, including wages, salaries, and other forms of compensation.
2. Disposable personal income: This is personal income minus taxes. It represents the amount of money individuals have available to spend or save.
3. Personal consumption expenditures: This measures the total amount of money spent by individuals on goods and services, including durable goods (such as cars and appliances), nondurable goods (such as food and clothing), and services (such as healthcare and entertainment).
4. Personal savings rate: This is the percentage of disposable personal income that individuals save or invest.

The Fed prefers the PCE over the Consumer Price Index (CPI) to gauge inflation. One of the main reasons behind PCE preference is its broader scope and ability to gauge the economy’s strength.That said, it is worth noting that PCE and PCEPI rose by 1.8% and 0.6%, respectively, in January. It implies that the Fed could be put in a position to consider hiking rates further for a longer time, thus confirming the higher-for-longer rate narrative that spread market uncertainty in the past week.

If the Fed takes a hawkish stance in the March meeting (by raising rates more than 25bps or through hawkish narrative) due to the high inflation rate in January, the recent uptrend momentum could be slowed, and the crypto market could correct most of the recent gains seen in the past two months.