The Fed's preferred inflation gauge drops Wednesday. Economists expect it to show prices still climbing and consumers still buying things they can't afford. This information will change exactly nothing about how markets behave.
Retail traders will spend Tuesday night refreshing their portfolios. They'll wake up early. They'll watch the pre-market numbers like it's game seven of the World Series. The data will print. They'll panic-buy or panic-sell based on a number they don't understand. By Thursday they'll have given back whatever they made and then some.
The personal consumption expenditures index measures price changes across the entire economy. It's the Fed's favorite inflation metric because it captures substitution effects when consumers switch to cheaper alternatives. Your Ramen noodle purchases are in there. So are your attempts to convince yourself that store-brand cereal tastes the same. The Fed studies this data with the intensity of a monk translating ancient texts. Then Jerome Powell uses it to justify whatever he already decided to do.
Analysts predict the core reading will show inflation cooling but not cool enough. Headline inflation stays stubborn. Consumer spending remains resilient, which is economist-speak for people keep buying shit on credit cards they'll never pay off. This is considered healthy for the economy.
Wednesday morning some trader named Kyle will see the print come in at 2.6% instead of 2.5%. He'll immediately sell his entire portfolio because he read on Twitter that anything above 2.5% means hyperinflation. By noon the number will be revised. Kyle won't notice. He'll be too busy explaining to his wife why their vacation fund is now a Honda Civic fund.
The data matters tremendously to the Fed's policy decisions. It matters zero percent to your ability to trade it. These are not conflicting statements.
Photo by Joshua Hoehne on Unsplash
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