Fed’s preferred inflation gauge set for downward revision

BEA price-method changes may lower core PCE inflation and narrow the CPI gap, easing Fed rate-hike pressure.

Fed’s preferred inflation gauge set for downward revision | Seeking Alpha

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Changes to the way the U.S. government calculates several service prices are expected to lower the Federal Reserve’s preferred measure of underlying inflation, potentially easing some pressure on policymakers considering another interest-rate increase, The Wall Street Journal reported.

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Quick Insights

How will BEA methodological changes affect core PCE inflation?

The changes are expected to reduce measured core PCE inflation by lowering reported inflation in investment-management and software services, only partially offset by higher legal-service inflation.

What is the impact of service price revisions on the Fed's policy pressure?

Lower core PCE inflation could ease pressure on Federal Reserve policymakers considering additional interest rate increases.

How do revised PCE calculations address discrepancies with CPI inflation?

The revisions may narrow the unusual gap between the PCE and CPI inflation measures, as the updated methods more accurately reflect changes in service prices.

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