Let’s talk about the data the Fed watches most closely—the Core PCE Price Index. Every time this thing gets released, it basically triggers a “policy expectations reshuffle” in the market.

So what happens if the data comes in hot (for example, the previous and expected values are both at 2.9%, but the actual result is even higher)?
The market immediately starts thinking: Rate cuts? Probably have to wait a bit longer, and high interest rates might stick around for a while. The dollar will strengthen, US Treasury yields will jump, and the stock market—especially growth stocks like those in tech—will likely take a hit.

On the flip side, if the data comes in below expectations, or just matches them?
The mood is totally different. The market breathes a sigh of relief—inflation pressure is easing, a “soft landing” looks possible, and expectations for rate cuts might even move forward. At times like this, risk assets get a boost—stocks go up, crypto rallies, and the dollar weakens.

So watching PCE is basically betting on what the Fed’s next move will be.