Financial encyclopedia

The most frequently heard phrase from Federal Reserve officials in recent months is that "policy will depend on data."

In other words, whether to cut interest rates in September is not decided by a single meeting, but depends on the trends of several key sets of data.

Among the economic indicators in the United States, there are three sets of data that the market refers to as "terrifying data" :

CPI (Consumer Price Index), PCE (Personal Consumption Expenditures Price Index), and non-farm payroll report.

Each time the announcement is made, the US dollar, the bond market and gold often fluctuate sharply simultaneously. Why does the market attach so much importance to it?

CPI: Instant Inflation Thermometer

The CPI reflects the price level at the consumer end and is the most direct indicator for measuring inflationary pressure.

Higher than expected → Stubborn inflation → The Federal Reserve may delay interest rate cuts → The US dollar strengthens, putting pressure on gold.

Lower than expected → Cooling inflation → rising hopes for interest rate cuts → Weakening of the US dollar, funds flow to risky assets.

CPI is the most immediate reaction trigger in the market.

PCE: The "Policy Indicator" of the Federal Reserve

The PCE has a broader coverage and its weights are closer to actual consumption habits, and thus is regarded by the Federal Reserve as the most authoritative measure of inflation.

In particular, "Core PCE" is regarded as a barometer of monetary policy.

Even if the CPI shows a decline, if the PCE remains high, the Federal Reserve may still maintain a wait-and-see attitude.

The PCE determines the policy stance and influences the direction of medium-term interest rate cuts.

Non-farm payroll report: A source of pressure in the labor market

Non-farm payroll data, unemployment rate and average hourly wage reveal the actual situation of the labor market.

Strong employment, rising wages → persistent inflationary pressure → more difficult to cut interest rates.

Slowing employment and cooling wages → weakening inflationary pressure → greater room for interest rate cuts.

The job market is an important source of inflation, and the non-farm payroll is the most significant verification.

Why is it called "terrifying data"?

Get straight to the core of policy: Three sets of data directly influence the decision on raising or cutting interest rates.

The market is highly sensitive: A deviation of 0.1% from expectations is sufficient to trigger sharp fluctuations in the US dollar and gold.

Global chain reaction: US data drives capital flows, and emerging markets are also affected.

CPI represents "current inflation", PCE represents "inflation from a policy perspective", and non-farm payroll reveals "wage and demand pressures".

The three combined form the "terrifying data effect" that the market fears the most.

Data will be released successively over the next two weeks, and the interest rate orientation for September will be determined.