Ep 35: What Is CPI, PPI & PCE Price Index (Indices) in Fed Speak - Decoded

Jess: Hi, Jessie.

Jessie: Hi, Barbie.

Jess: Hi, Barbie.

Jessie: Hi, Jessie.

Jess: Hi.

Jessie: So, guess what? I watched my first ever FOMC press conference, the one from May 1st, 2024.

Jess: That just happened.

Jessie: And you'll never believe it, but I have some questions.

Jess: You do? I'm so glad that you watched that.

Jessie: I'm so excited.

Jess: I had to like rewind it and watched it like 17 times, I swear.

Jessie: But before we even get into what Papa Powell said and what all that means, I think we need to understand some jargon and probably some we've already talked about in the past, but it's always nice to have a little refresher.

Jess: PCE, or personal consumption expenditures.

Jessie: I heard that one.

Jess: And maybe a little quick refresher on PPI and CPI.

Jessie: And maybe even we might need to talk about QT and QE.

Jess: We did talk about that somewhat recently, but if that ties in, you know, whatever you think.

Jessie: Yeah, it does.

Jess: And we're going to have a new word today, tapering.

Jessie: But we should definitely talk about the differences between those indices or indexes that measure inflation, what the Fed prefers gauges and why, and then their tools.

Jess: So we have a go down a rabbit hole of the Fed today.

Jessie: But I think we should do a quick stock market update too, because we're in.

Jess: We're in an earnings season, time to have some report card time.

Jessie: And then there was some economic data.

Jess: So really, really quick on that.

Jessie: And we'll bring it back to the Fed.

Jess: So, okay, let's do it.

Jessie: You're listening to Market MakeHer, the self-directed investing education podcast with one goal, to help you understand how the stock market works so your money can make money.

Jess: We make it make sense in the funnest way possible.

Jessie: We're your hosts.

Jess: I'm Jessie DeNuit.

Jessie: I want my money to make money, but I have realized I need to understand how this works to make confident decisions, which means I am learning alongside you.

Jess: My job is to ask the questions, leap through the gallows and levitate down Wall Street.

Jessie: That was a game of foot lyric, right? Who's afraid of little things? You know what, though? I still liked it.

Jess: It sounded good.

Jessie: It sounded very gothy.

Jess: I know.

Jessie: I thought I could speak that one in.

Jess: I'm like, she's not going to know.

Jessie: She's not going to know.

Jess: I did it.

Jessie: That was a good one.

Jess: I thought we were going with a ghost theme, me haunting Wall Street.

Jessie: Nope.

Jess: I mean, yeah.

Jessie: Always Taylor Swift.

Jess: Always.

Jessie: It is.

Jess: Hello, I'm Jess Ibsgib.

Jessie: I love Taylor Swift and tormenting Jessie in the funnest way.

Jess: I've worked in finance for about 15 years, and my job is to answer all of those questions and make it make sense.

Jessie: Teamwork makes the dream work, they say.

Jess: And here we go.

Jessie: Let's talk about the stock market real quick, Jessie, before we get into your FOMC questions.

Jess: Because I have a feeling we're going to go down a deep, deep rabbit hole.

Jessie: So we'll just give the really quick, cliffiest notes of versions.

Jess: Okay.

Jessie: Why is it called? To do Jessie's notes style.

Jess: Yeah, Jessie's notes.

Jessie: I was going to say, why was it called Cliff Notes? And I wanted something else.

Jess: I'm going to womansplain it.

Jessie: Here we go.

Jess: All right.

Jessie: So three words that I am using for the month of May so far.

Jess: Earnings, employment, and tapering.

Jessie: So tapering goes into the Fed.

Jess: So start with earnings.

Jessie: 400 S&P 500 stocks reported so far.

Jess: That's 83%.

Jessie: So when we look at the stock market, I want to look at the S&P 500.

Jess: I feel like we said it all too much, and I'm kind of sick of it, but better than expected earnings.

Jessie: Wow, they beat expectations.

Jess: This keeps happening.

Jessie: But the ones that are beating this time are healthcare and technology.

Jess: Oh, wow.

Jessie: Yeah, there you go.

Jess: But it leads into- That's not technology, at least.

Jessie: I'm not either, because AI is still a theme.

Jess: But what's really important about earnings season and tying it back to the Fed is you're going to get company commentary too.

Jessie: And that's an insight into consumer behavior, especially when you look at grocery stores and things like that.

Jess: So a couple of big call outs, earnings season.

Jessie: One, consumers are really price sensitive.

Jess: And that was from McDonald's and Starbucks.

Jessie: They were like, demand is coming down.

Jess: And with McDonald's, I think of that as a value.

Jessie: I even went there the other day, and I was like, whoa, I remember this 99 cent McChicken sandwich.

Jess: It's not that.

Jessie: I think it was like 2.99.

Jess: I just saw a meme about that, a crying meme where it's like, I remember when McDonald's had 99 cents.

Jessie: These 99 cent menus, and everything was easier.

Jess: That's inflation right there.

Jessie: It's all around you.

Jess: So that's an interesting point.

Jessie: Also, there's a big CapEx uptick in AI.

Jess: So Meta, Facebook, they don't have an AI product necessarily yet.

Jessie: You might have noticed some updates in Instagram and Facebook where all of a sudden this AI is there.

Jess: But that's not something that they monetize.

Jessie: They make money off of ads.

Jess: Like, you know, deep dive that we could probably save for another day, but- You buy that blue check thingy.

Jessie: Yeah, exactly.

Jess: But they have to spend money to make money.

Jessie: That's why technology is the growth sector.

Jess: You spend money to make money.

Jessie: And so now this big CapEx uptick is coming through primarily from Meta.

Jess: But as soon as Meta reported, they said, hey, we've spending a lot in AI.

Jessie: We don't have a product yet, but they were the year of efficiency.

Jess: They led with the layoffs and did their product focus.

Jessie: They went away from the Metaverse and now are moving to AI, and maybe that will come back at some point.

Jess: But Nvidia immediately shot up because of the domino effect.

Jessie: Just think about it.

Jess: If a company says, I'm investing in AI, well, somebody is getting that cash.

Jessie: Like, where is cash going? It's all we're really looking for.

Jess: And who's getting the revenue? What's the health of the consumer? That's the market.

Jessie: How much did Nvidia shoot up this time? It's back up to like $900 last time I checked, which was yesterday.

Jess: So it's probably, who knows where it's at now? A high beta, high vault.

Jessie: It's all over the place.

Jess: Yeah.

Jessie: But all together, companies that are hyperscalers are Microsoft, Amazon, Google, Meta up a lot.

Jess: So that just means there's going to be a lot of spending in AI from technology and what's going to translate to real product growth.

Jessie: And Nvidia is late on the cycle.

Jess: Companies are seeing like Nvidia and how AI is taking off and probably like, I think everyone's scrambling like, oh, should we have AI? Should we incorporate AI? Like every single company is like trying to figure out a way to incorporate it.

Jessie: Yes.

Jess: And you know why, Jessie? That's called shareholder pressure.

Jessie: Right there.

Jess: Like, because you're going to the board.

Jessie: I always imagine that with like dudes in white wigs.

Jess: I don't know why.

Jessie: Because they're not that way.

Jess: But that's what I have in my head.

Jessie: But they do say, how are you using AI? How are you using AI? Because you want to know.

Jess: So this is a really great point.

Jessie: So that's the earnings in a nutshell doing really well.

Jess: We're now entering gross with earnings.

Jessie: That's good.

Jess: This would be the third quarter of gross.

Jessie: That doesn't happen when like inflation isn't coming down to where the Fed is wanting it to be.

Jess: I think there's a sentiment of people getting tired of paying all these high prices still.

Jessie: It's a really good point.

Jess: Inflation generally is actually good for the stock market because it means prices are higher.

Jessie: And if people are willing to pay higher prices, the company's making more revenue.

Jess: So it just really depends on what the Fed's going to do.

Jessie: Are they going to keep rates higher for longer? Is there cracks in the economy? And there are cracks in the economy.

Jess: I love this episode today.

Jessie: You are seeing through the trees.

Jess: The unemployment rate started ticking up.

Jessie: That's cracks.

Jess: So we're at 3.9%.

Jessie: And three months ago, we were at 3.7.

Jess: Everything I hear the Fed saying is like, oh, unemployment's fine.

Jessie: Like the job economy is strong or whatever.

Jess: And I'm like, is it? I think a lot of people I know are struggling to find work, especially in marketing.

Jessie: You're going through four rounds of interviews, having to do all these assignments, and still not getting these jobs.

Jess: Which sectors are actually booming in this job growth we're talking about? Oh, I have some data for you.

Jessie: We'll bring that up when we talk about the Fed.

Jess: But then the other piece of economic data.

Jessie: So the Fed did their announcement, and then this data came afterwards.

Jess: That's good to know.

Jessie: And then the monthly job creation for April.

Jess: So everything is on a lag.

Jessie: Everything.

Jess: We're always looking at the month prior was well below expectations.

Jessie: And that caused the market to rally.

Jess: So we were expecting, I think it was 100,000 jobs more than what came.

Jessie: Yeah, it was around 270 that we were expecting.

Jess: And there was 175,000 jobs that were created.

Jessie: So higher unemployment, less job openings.

Jess: And that generally is not good.

Jessie: I'm telling you how the market reacts.

Jess: I'm not saying, oh, this is good.

Jessie: I'm saying this is good for the market.

Jess: As in, bad news is good news, because the Fed's actions do tip us into a recession, which is mass unemployment.

Jessie: And we don't want that.

Jess: So that's what you mean.

Jessie: Now I understand the bad news is good news is whatever that you were saying before.

Jess: That makes sense.

Jessie: Yeah, exactly.

Jess: We just like to make things as complicated as possible.

Jessie: No, we don't.

Jess: It's just not something easy to understand.

Jessie: It all fits together at some point.

Jess: Yeah, exactly.

Jessie: Or we try to pull it all together at some point.

Jess: Yeah.

Jessie: Yeah, OK.

Jess: Well, and I'm sure also bad news is good news for some people, like people who are retired or whatever, trying to live off of their...

Jessie: Oh, they're making out real well.

Jess: Because interest rates are higher, and they're mostly have bonds and fixed income products in their portfolio.

Jessie: And so the wealth effect is really happening.

Jess: But that's a balance.

Jessie: You can't keep interest rates too high for too long or normalize it, because then it doesn't work.

Jess: Yeah, because everything stays high.

Jessie: Yeah.

Jess: Prices stay high, everything, and like, someone's got to give.

Jessie: A term I don't think we've ever used before is real wages or real wage increases.

Jess: That's the goal.

Jessie: We want wages to increase more than inflation.

Jess: And then you have real income growth.

Jessie: Otherwise, you don't.

Jess: If prices are going up, and you aren't making more than inflation, well, that's not really a wage increase, is it? Yeah.

Jessie: When does it end? Like, you know, I guess it ends when we stop spending so much money.

Jess: In a way, it does.

Jessie: We're looking at earnings.

Jess: And what I'm looking for is you don't want to hear any corporation say, we're making money because we raised prices.

Jessie: That's coming down, which is good.

Jess: So there are positive signs all around, which leads to what the Fed said.

Jessie: So let's talk about that.

Jess: Let's get into it.

Jessie: So the TLDR version of the FOMC meeting, to me, basically- Jesse's version.

Jess: Yeah, Jesse's version.

Jessie: I know that was a Taylor Swift thing, but I went with it anyway.

Jess: Basically, the Fed is not confident there is enough good progress in the Q1 data that would allow any sort of interest rate cuts at this time.

Jessie: So what all is the Fed looking at to determine this, is what I would like to know.

Jess: Because I keep hearing about PCE and GDP and CPI, and I know we've gone over those terms at some point, but I'm still not quite pulling it all together in a way that helps me understand what the Fed is actually concerned about, and what is really going on in the American economy, in terms of us not being able to find jobs, even though unemployment rates are supposedly low, and all the high prices we keep seeing everywhere, even though it's supposedly come down substantially.

Jessie: So I'm feeling that the hits in my rent and what I'm spending just to live my life is still around, and I'm not the only one.

Jess: I hear this all over my friend groups and social media, and I think Americans have that sentiment.

Jessie: So what does this all mean for our future, or at least the rest of the year? How do we interpret all this data? They're definitely not confident in what's going on right now, that they can cut rates anytime soon.

Jess: Yeah, so they gave us a lot of insight.

Jessie: They want to be confident in the data, meaning their goal is to get inflation to 2% year over year.

Jess: That doesn't mean prices are coming down.

Jessie: That means that prices aren't going up as fast, and there are lots of different measurements for that.

Jess: Now, it's not as black and white, and I think we'll get into what those different indices mean, which is PCE, GDP, and CPI.

Jessie: So that's just data used to figure out if they're doing what they're looking for.

Jess: But since they have multiple tools and there's all these other impacts, there's a lot that goes on.

Jessie: But you have to remember that their mandate is two things, and Powell sticks to those, which is price stability, inflation, synonymous words, and maximum employment.

Jess: They believe that tackling inflation in the long run helps with the employment picture.

Jessie: And then a lot of it is actually measured to pre-COVID levels.

Jess: So it's like, oh, labor market participation is back to pre-COVID levels, which was 63%.

Jessie: But that's primarily driven by younger people, so 25 to 55.

Jess: 55 plus has left the workplace because they're retired.

Jessie: Why do they want to work anymore post-COVID? They were like, oh, I had to work from home, not going back to the office.

Jess: Sorry.

Jessie: I'm hearing that people in their 70s, though, are not having enough retirement to sustain them.

Jess: And that's scary.

Jessie: Yeah.

Jess: Can you imagine doing an interview in your 70s to try to get a job? It's terrifying.

Jessie: I mean, I used to work at a retirement community way back in the day, and I know people would just go work at the grocery store just to have something to do.

Jess: Yeah.

Jessie: But yeah, no, I mean, that's not OK.

Jess: That's not what we want.

Jessie: You work to have a better life.

Jess: You don't live to work.

Jessie: So I agree.

Jess: And unfortunately, what's happening, and he acknowledges this, he says, restrictive Fed policy hurts the low-income consumer the most.

Jessie: Yeah, I did hear him talk about that, like the hardships.

Jess: It is.

Jessie: And that's what's so tough about it all.

Jess: But higher prices would be 10 times worse.

Jessie: It's such a tough thing.

Jess: It hurts the people who have debt.

Jessie: But we can't have the new normal be these higher prices for everything.

Jess: They've definitely made some shifts.

Jessie: It hasn't gone up as much.

Jess: It was 9% at the peak of October 2022.

Jessie: Now it's...

Jess: Yeah, that was high.

Jessie: That's really high.

Jess: And remember, Social Security is also inflation adjusted.

Jessie: But let's talk about the indices.

Jess: Which one do you want to start with? Let's talk about PCE, personal consumption expenditures.

Jessie: PCE is considered the Fed's preferred index.

Jess: OK.

Jessie: And maybe we will break them all down together.

Jess: So there's PPI, CPI, and PCE.

Jessie: There are different weights that are associated with all of them, just like there's different methodology for the different indices like the Dow Jones and the S&P 500.

Jess: One's price weighted.

Jessie: The other one is market cap weighted.

Jess: There's different methodology and different entities that actually make up CPI and PCE.

Jessie: Those two are very similar, but different weightings.

Jess: They both measure inflation from the consumer perspective.

Jessie: PPI is the producer.

Jess: Those are the companies, right? Exactly.

Jessie: So think input cost, wholesalers.

Jess: What does it cost to make those goods and services? So really, theoretically, PPI, the producer perspective, should be leading the CPI perspective.

Jessie: And then the CPI perspective should be somewhat close to the PCE perspective.

Jess: I knew CPI, PPI was consumer price index, producer price index.

Jessie: I wasn't thinking about it in terms of like an indice index.

Jess: I don't know why.

Jessie: Like I just like heard the word index.

Jess: I was like, oh, that's what the I is.

Jessie: I didn't think anymore about it.

Jess: I was focused on consumer producer, the PCE, personal consumption expenditures.

Jessie: Can we think of it in terms of like the indices, the way we learned about them for the stock market and how that measures how the market's doing? Is it kind of like a similar way to think about it? Okay.

Jess: Absolutely.

Jessie: Because the indice measures just companies.

Jess: This is going to measure specific goods and services.

Jessie: And that is literally shelter, rent, items you find at the grocery store, travel, airlines.

Jess: And there is people who do surveys that call grocery stores specifically.

Jessie: They pull electronic data, their analysts that go online and make phone calls.

Jess: And it's something like 86,000 inputs.

Jessie: It's a really high number of how much information is used to comprise this index.

Jess: Now the difference and why PCE, at least what I believe is why it's their preferred index, is the way that they're adjusted.

Jessie: Meaning CPI has an annual adjustment and PCE has a quarterly adjustment.

Jess: The intent of CPI and PCE is to capture our budget.

Jessie: What am I spending money on? And from a percentage weighting perspective.

Jess: So if more of my budget is going towards as a collective, going towards housing, that should have more of an impact on the weighting of the index because it's going to truly reflect how much it costs us.

Jessie: And it's regionalized.

Jess: You could really go into a rabbit hole with all this data and we can link it into the show notes.

Jessie: So PCE makes those adjustments more frequently than CPI does.

Jess: Because PCE is quarterly and that's why they're probably talking about PCE because in this meeting they actually looked at all the Q1 data, right? Right.

Jessie: When they look at it all.

Jess: But they pay a little more attention to PCE.

Jessie: They still use all of the data.

Jess: But if you are switching to a cheaper product all of a sudden because eggs have skyrocketed and you're not using that anymore, well CPI is not going to make a weighted adjustment.

Jessie: But PCE is.

Jess: And that's the difference and why you could see some disparity occur between the indices.

Jessie: And then there's another layer.

Jess: You might have heard, did you hear core PCE at all? Yeah.

Jessie: Okay.

Jess: All right.

Jessie: It takes out food and energy.

Jess: Now you might be like, oh wow.

Jessie: Well that's not an accurate depiction.

Jess: So gas prices are considered volatile.

Jessie: Okay.

Jess: So a big change in gas prices, maybe super high one month and then super low the next.

Jessie: But it should go into like producer perspective because they're going to adjust their input costs based on their costs.

Jess: So this trickle down.

Jessie: And then food like wheat and cocoa and things like that.

Jess: There's actually a whole another market, the commodities market where we could look at that information.

Jessie: And then that will give you an insight.

Jess: So it's a lot of data to figure out if the battle to inflation is being won or not.

Jessie: So there's so are they looking at just core PCE then when they're looking at making like interest rate cuts? Stay with us.

Jess: We'll be right back.

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Jessie: We'll see you there.

Jess: They look at all of it, inclusive of employment data and a lot of other data.

Jessie: So we look at core PCE, we're taking out energy and food, which to me are like big parts of what we spend money on.

Jess: There's core PBI, core CPI and core PCE as well.

Jessie: So they all would strip out food and energy.

Jess: Okay, that's interesting.

Jessie: So PCE right now is at 2.7.

Jess: That was reported in April, but reporting in April is from the previous month.

Jessie: So we need PCE to come down.

Jess: But it's like running a marathon.

Jessie: I don't run a marathons, but this is what I hear, or if you're working on a project.

Jess: The last bit of it is really hard.

Jessie: We're in that part of it.

Jess: Because we went from nine to now PPI is 2.8, PCE is 2.7, CPI is 3.5.

Jessie: And PCE also has less weight on shelter.

Jess: It's also important.

Jessie: Shelter being like the houses we buy and rent.

Jess: Yes.

Jessie: Okay.

Jess: So what people in the U.S.

Jessie: are paying for goods and service is what the PCE index is measuring.

Jess: And then we look at the core PCE, we're taking out energy and food.

Jessie: And this is basically kind of just like a gauge on what the American people are spending, right? Yeah.

Jess: So basically, it's like a way to track inflation, because we can see how much we've spent year over year or each quarter.

Jessie: Housing is a certain component.

Jess: Food is a certain component.

Jessie: Shelter, auto, auto insurance, even those things are all a certain weighting.

Jess: And then collectively, it's up 2% year over year is the goal.

Jessie: And it's around, yeah, where it is now.

Jess: Okay.

Jessie: If we want to know the difference between CPI and PCE, the CPI measures the change in out-of-pocket expenditures of all households.

Jess: And then the PCE index measures change in goods and services consumed by the households.

Jessie: Yep.

Jess: Okay.

Jessie: So, but the really big difference is the adjustments for substitutions.

Jess: Because if money's getting tight, you're going to make some changes.

Jessie: You may stop buying steaks all of a sudden.

Jess: That should have a less weighting.

Jessie: You know what I mean? You might switch to hot dogs, like the extremes.

Jess: Yeah, but why would that have a less weighting? It's like a whole change in- Well, it's because people make substitutions and they make adjustments.

Jessie: Because there is like 82,000.

Jess: I don't know if that's the exact number.

Jessie: It's like 60s and the 80s.

Jess: But tens of thousands of pieces of data that make it up and that make up a weight, and sure it's minimal.

Jessie: But if there are changes, there is a huge price difference between buying $30 filet mignons weekly to switching to $4.99 hot dogs.

Jess: Do you see what I mean? So if you say, oh, filets are coming down and people aren't buying hot dogs, it doesn't matter.

Jessie: It depends on where people are spending their money.

Jess: The point of CPI and PCE is your budget, your consumer budget collectively.

Jessie: It changes by regions.

Jess: It could be different in different states.

Jessie: People are different.

Jess: Spending habits are different.

Jessie: And that's all tracked.

Jess: It's actually a really big data set.

Jessie: You can get lost.

Jess: Yeah, let's put all the links in there in case anyone wants to go into those rabbit holes.

Jessie: It actually is very similar to an index.

Jess: I think that's a great, I mean, it is an index, but to our S&P 500, because the S&P 500, more weight is put on higher market cap.

Jessie: Microsoft overtook Apple.

Jess: NVIDIA got into the top three because it went up in price so much.

Jessie: And since it went up in price so much, it has a bigger piece of pie that moves the market.

Jess: Well, if a lot of people are buying one thing, then that has a bigger piece of pie that could adjust consumer spending habits.

Jessie: And if those prices weren't going up so high, then that's going to help with budgets.

Jess: That's the point.

Jessie: That's the takeaway, is one cares for substitutions more, the other one doesn't.

Jess: Okay.

Jessie: That makes sense.

Jess: Okay.

Jessie: So going back to what our hawkish Fed Chairman Jerome Powell said in the recent press conference, is that the Fed remains squarely, quote unquote, focused on the dual mandate of maximum employment and lowered inflation, like we always say.

Jess: And I'm paraphrasing this because I know every little word he says is very important and everyone's hanging on to see what he says.

Jessie: So I'm paraphrasing.

Jess: Basically, he said they've been doing their job of trying to lower inflation and keeping the labor market strong, but inflation is still too high.

Jessie: Duh, we all know that, we're feeling it.

Jess: And the path forward is uncertain, is what he said.

Jessie: And they're still committed to bringing inflation down to the 2% goal, but bringing it down is not really going as well as they hope, basically.

Jess: So they're leaving interest rates unchanged.

Jessie: And I know last time we talked about the Fed meeting a month ago, they were projecting to cut interest rates three times.

Jess: And we were kind of talking about like, oh, should we be switching into CD ladders? All these things.

Jessie: Now they're looking at Q1 data and all this other data we just talked about, and they're not confident that they need to start cutting interest rates yet, because they're not seeing the things that they want to see yet.

Jess: So they mentioned like a reduced securities holdings at a slower pace.

Jessie: Let's first talk about like what the inflation rate is at right now.

Jess: A 2% rise in inflation year over year is like a healthy economy for the U.S., is what we say, or what the target is.

Jessie: So what is it at right now? Yeah, that's their goal.

Jess: 2% year over year growth is good for the economy.

Jessie: Prices go up, companies are growing, we want wages to go up too, like especially when people do that comparison of, oh, back of the day, it cost $0.10 for whatever.

Jess: Like, yeah, but wages are also higher, and we want this balance.

Jessie: There is the balance between wages and inflation.

Jess: And that's why they have that dual mandate, right? Right.

Jessie: So right now, CPI, consumer perspective, not heavily substitutions, a little more weighting on housing, is at 3.5% year over year.

Jess: Core is at 3.8%.

Jessie: Okay.

Jess: PPI, producer.

Jessie: Remember, this one should be the leading, and this is the good one.

Jess: So this gives me some hope here.

Jessie: So this was reported in April.

Jess: PPI was at 2.8% year over year for March, reported in April.

Jessie: Core is at 2.1%.

Jess: So we actually get the next inflation data next week.

Jessie: And I'm curious if it is going to come down because of the producer perspective, because it should technically, since it's input cost, be preceding CPI.

Jess: If the producer price index comes down, that means ideally that like the cost of these goods for us or for the companies that buy them and then sell them to us is coming down lower.

Jessie: So then hopefully that like eventually kind of trickles down to us seeing lower prices.

Jess: Okay.

Jessie: Yeah.

Jess: So PPI is lower than CPI right now.

Jessie: And then PCE is at 2.7% and core is at 2.8% year over year.

Jess: We know that this is a restrictive Fed.

Jessie: What does a restrictive Fed need to do to get that down? So that's where they use their tools.

Jess: And I know we talked about the balance sheet there for a moment as well, because they push the economy into a recession and they don't want to do that.

Jessie: So what they need to do is have a good form of balance.

Jess: So he said, we're at peak policy.

Jessie: I don't think they're going to raise rates anymore.

Jess: It's just how long are they going to keep rates there? Are we going to be higher for longer? And then you have to think about the wealth effect.

Jessie: Like you said earlier, that's why PCE also has savings and it has, there's also something else called an employment cost index that's looked at, productivity is looked at.

Jess: Really the goal is we want real wage growth.

Jessie: We want wages to outpace inflation, but not too much on either end.

Jess: Like literally a balancing act.

Jessie: Yeah.

Jess: When we talk about like the Fed cutting rates, is the interest rate, is that what's at 5.25 to 5.5% right now? That's right.

Jessie: That's right.

Jess: Yep.

Jessie: That's where we're at now.

Jess: And like in a previous episode, we talked about how you can look at the CME FedWatch tool to kind of see like where those projections are, but it's going to change constantly because like as of last month, we thought things were going to get cut sooner, maybe June, July, but now we don't know, but we'll see what happens.

Jessie: In every other meeting, we didn't get at this last meeting, we get something called the SEP or dot plot, which is a summary of economic projections meeting.

Jess: Yeah.

Jessie: So we didn't get it this time.

Jess: So next time they'll give us an indication of where they think it will be.

Jessie: And it's just an indication.

Jess: It's not a plan.

Jessie: It's just more information.

Jess: And he makes that clear whenever that comes up.

Jessie: Okay.

Jess: So, and then how does GDP play into this? Did we talk about that? We haven't.

Jessie: It's not in their mandate.

Jess: So he had that question a couple of meetings ago where someone said, are you concerned with the growth in GDP? And he's like, I mean, I'm not supposed to be, guys.

Jessie: I'm not responsible for the economy.

Jess: It's not me, but my actions affect it.

Jessie: As in like I'm saying, Powell, my actions don't affect the economy, but his do.

Jess: So it's all related because GDP means growth, but that's imports and exports and PPI and consumer.

Jessie: And like, there's so much more that goes into GDP.

Jess: That's not what they're trying to like, yeah, attack right now or whatever, balance out.

Jessie: They have an impact.

Jess: I'm sure they watch it, but also he's very careful with his words because, you know, yeah.

Jessie: And he said something like how supply and demand is coming into better balance.

Jess: And then we're also seeing these like labor demands, which I don't know what industry they're talking about because like I said, for me, I'm only thinking about marketing probably because that's the industry I'm in, but I am not seeing demands for labor.

Jessie: If anything, it's like harder to find jobs.

Jess: There's a lot more competition.

Jessie: So what industries are we seeing the jobs attitude that we were talking about before? So you can actually pull this data.

Jess: So I want to give you the links.

Jessie: BLS.gov does this because they have all of it.

Jess: You can look at the fastest growing jobs and you can look at the most new jobs by number.

Jessie: And it's really, really interesting.

Jess: So supply and demand coming back into balance.

Jessie: The issue was there were too many job openings versus people, but it may not be the job openings that you want.

Jess: That just means ratio.

Jessie: It does it.

Jess: It does not take into account of this like doctorate degrees versus doctors available.

Jessie: It could be literally, oh, McDonald's is hiring.

Jess: You have a doctorate degree, but you're going to be matched up as job openings to ratio.

Jessie: So it's not taking that into account.

Jess: So what came into balance is we actually had more immigration, but immigration is not back at pre-pandemic levels.

Jessie: And that helps the labor market quite a bit because it reduced the amount of job openings to available workers.

Jess: But what's really interesting, if you look at the fastest growing jobs and they'll give you the median pay so it can help with your negotiations.

Jessie: But growth rate, the top one is wind turbine service technicians.

Jess: Yeah.

Jessie: Interesting.

Jess: Oh, another rabbit hole.

Jessie: And I think we should do an episode on this, but you could use this to then have investment thesis to pick stock ideas.

Jess: Yeah, we should do one on that.

Jessie: So much.

Jess: But we'll leave these links in here.

Jessie: I think it's interesting though, a lot of it is healthcare, which goes with the aging population.

Jess: And that's what you also see within the employment data.

Jessie: That's where this comes from.

Jess: Okay.

Jessie: Yeah, this is great.

Jess: These two links.

Jessie: Yeah, like I said, we'll link them.

Jess: These are great to have because if you're looking for a job or you're trying to figure that stuff out and like you said, negotiating, good to know.

Jessie: Great information to have.

Jess: Absolutely.

Jessie: All right.

Jess: All right.

Jessie: Well, if any of you listeners have more questions about this, because sometimes I have more questions after I go back to this episode too.

Jess: But if you have any more questions about this or anything with the Fed or anything we've talked about today, feel free to go to our website, submit a form or find us on social media, send us an email, like whatever you want to do, however you want to reach out to us.

Jessie: It's just Jess and I, so we always check everything and we'll find your questions and we will answer them like we always do in another episode.

Jess: And thank you for tuning in today and going down this rabbit hole with us.

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