When it comes to inflation numbers, the CPI (consumer price index) usually gets all the attention. But it’s the PCE (personal consumption expenditures) that the Federal Reserve pays the most attention to.
By that measure, inflation held remarkably steady last month, according to the U.S. Bureau of Economic Analysis. In April, the year-on-year change in the PCE was 2.7%, exactly the same as it had been in March. And year-on-year PCE excluding food and energy — the Fed’s preferred measure — was 2.8%, also the same as in March.
That’s still not quite down to the Fed’s target of 2%. But for many investors and analysts, no news was good news. After months of higher-than-expected inflation data — including two upticks in the CPI in February and March — Wall Street welcomed a flat, predictable PCE.
“The market has spent this year worried about inflation, and there was a sigh of relief this morning when it wasn’t higher than expected,” said Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance.
Investors aren’t just hoping for lower inflation for its own sake. For months, the Fed has insisted it needs to see more evidence of cooling prices before it lowers interest rates — an action that would lower business costs and likely boost the stock market. But as inflation remained stubborn, the central bank has held the federal funds rate frozen at 5.25% to 5.5%, where it’s been for the past 10 months.
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Some hope the latest PCE data will help give the Fed the reassurance it needs. On a month-to-month basis, expenditures were up 0.2% in April, down from 0.7% in March. This raised both concerns and hopes: Cooling consumer spending could hurt the broader economy, but it may also give the Fed a reason to cut rates sooner.
What does all this mean for wealth management? Do the latest PCE numbers bring us closer to a soft landing or to a recession? How will the markets respond? Which investments will benefit from the news, and which ones will get hurt?
For answers, we turned to a variety of financial analysts, and they gave us a variety of answers. Here’s what they’re saying: