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The financial world waited with bated breath for the Personal Consumption Expenditures (PCE) Index to be released, following a lower-than-anticipated Consumer Price Index (CPI). The PCE is a major indicator of inflation trends in the United States, and its most recent report at the end of June showed promise: inflation may continue a downward trajectory.
For those unfamiliar with the index, the PCE provides analysts with helpful data on consumer behavior. It is much broader than the CPI, which focuses solely on out-of-pocket spending made by consumers. The PCE encompasses all spending by United States consumers, on behalf of consumers, and even spending by nonprofits. For example, while the CPI only tracks medical expenses paid by consumers, the PCE includes health insurance expenses paid by employers or Medicare and Medicaid. The PCE is thus a much more comprehensive assessment of prices and spending, offering a greater amount of detail for analysts to explore.
So, what does the PCE report mean in practical terms, and how might it affect you? The most recent PCE showed lower-than-expected data, aligning with the CPI report. This trend is significant: it tells us that inflation is slowing more than investors and analysts had previously anticipated. A low PCE suggests that the average cost of living is stabilizing, which plays a role in attitudes towards investing. Because there are now signs of easing inflation, there is also increased speculation that the Federal Reserve might lower interest rates soon.
This is a positive sign across the board. The Fed historically uses interest rate hikes to help cool inflation, but if the current trend continues, there may be less of a need for higher interest rates. This could mean that rate cuts are coming. If the Fed does cut rates, that will impact a variety of investment sectors, from stocks to bonds. If you do not already have a financial adviser, working with one can help you determine how best to take advantage of these market trends.
For the average consumer, there are benefits outside of the potential rate cuts. Lower inflation means a reprieve from rising prices across the board. As the Bureau of Economic Analysis reported, personal income rose by 0.5% while consumer spending increased by a mere 0.2%.1 The price of goods declined by 0.4% and energy declined by 2.1%, both of which offset the minor 0.2% increase in services and the 0.1% increase in food.2
I remain very optimistic about these current trends. The recent PCE report is just one chapter in the rapidly expanding book of inflation, but it is a step in the right direction. As new information continues to develop, both consumers and investors will do well to stay informed. If you have any questions about these trends or how the evolving market may impact you, please don’t hesitate to reach out to our office. You can contact us at (469) 212-8072 or visit www.gdswealth.com. We would be delighted to answer any questions you might have.
1 CNBC, June 2024.
2 Ibid.
Investing carries inherent risks, including market volatility, potential loss of capital, and uncertainty in returns, which investors should carefully consider before making any financial decisions. GDS Wealth Management is an investment adviser in Flower Mound, TX. GDS Wealth Management is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. GDS Wealth Management only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of GDS Wealth Management's current written disclosure brochure filed with the SEC, which discusses, among other things, GDS Wealth Management’s business practices, services, and fees, is available through the SEC's website at: adviserinfo.sec.gov.
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