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1/3 The repost is correct. But the Fed adopted the PCE (orange) as its measure in 2000, not CPI (blue). Core PCE was 2.8% in Sept. 24 and was falling when the rate cuts began. It is now 3.3% and rising, as they started hiking. Viewed this way, hikes look more appropriate. https://t.co/YEj8s2pdFD 2/3 The gap between core CPI/PCE is the largest since 1985, when the BLS switched to measuring housing inflation using Owner's Equivalent Rent (OER) and Rents of Primary Residence (RPR) OER plus RPR ~40% of core CPI ~17% of core PCE This is all about housing weightings. https://t.co/95455ciIVj 3/3 Which one should the Fed use? The one the Fed targets: PCE. And that measure suggests hiking was appropriate. --- CPI weights come primarily from the BLS Consumer Expenditure Survey and measure what households spend out of pocket. PCE weights come primarily from BEA business surveys and national-accounts data. They measure the broader set of goods and services consumed by households—including health care and other services paid for on their behalf by employers or the government. PCE also adjusts its weights more quickly as spending patterns change. That makes it broader and more responsive to substitution, which is why the Fed prefers it. --- Neither measure is “wrong.” CPI says housing-heavy, out-of-pocket inflation is cooling. OER has slowed to 3.06% and rent to 2.75%. PCE says broader inflation, especially away from housing, is strengthening. So the two measures are telling us different things: * Housing inflation is cooling. * Broader service inflation is not. For households, CPI may better capture the inflation they experience directly. But for the Fed, core PCE at 3.3% and rising is the more relevant signal, and it supports a hike.