The inflation measure the Federal Reserve actually targets, published with the monthly personal income and outlays report; it usually runs a few tenths below CPI.
PCE differs from cpi in three ways. Its weights update continuously so it captures substitution between goods, it covers spending made on consumers' behalf such as employer-paid healthcare, and its shelter weight is roughly half that of CPI.
Those differences mean the two indices can tell different stories for months at a time. The Fed's 2% target is a PCE target, so when the committee talks about inflation it is talking about this series, and the market usually knows its likely value in advance from the CPI and ppi components that feed it.
Example: CPI runs 3.2% year over year while PCE runs 2.7%. The 0.5 point wedge is mostly the lower shelter weight, so a forecaster mapping a CPI surprise into the Fed's reaction function must apply the bridge rather than the headline.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
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