Fed PCE Changes to Cut Inflation by 0.2 Points
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- The Bureau of Economic Analysis announced methodological changes to how prices are calculated in three PCE subcategories — portfolio management and investment advice services, computer software and accessories, and legal services — with revisions set for release on Sept. 30.
- Analysts' consensus view is the changes will reduce core PCE inflation by about 0.2 percentage point; core PCE was 3.4% for the 12 months ended in May and has run above the Fed's 2% target every month since March 2021.
- Former Fed governor Stephen Miran argued in a December speech that the current portfolio management price measure tends to "simply reflect the recent performance of the stock market rather than some measure of the underlying prices," since a fixed 1% fee against a 20%-rising portfolio counts as a 20% price increase.
- Miran, with Fed staff economists Alessandro Barbarino and Anthony M. Diercks, published a May paper documenting measurement flaws in how portable memory devices, video games, and other tech products are counted in PCE — joking JPMorgan economist Abiel Reinhart that "Grand Theft Auto VI may yet have a chance to move the Treasury curve."
- The revisions arrive against a backdrop of attacks on statistical agencies: President Trump fired the BLS commissioner less than a year ago, and his pending replacement Brett Matsumoto has attracted broader support than the criticized original nominee.
- Vikas Patel of liberal think tank Employ America urged the BEA to "act with more transparency around timing, weights, and historical revisions" and extend similar scrutiny to untouched categories, citing "growing mistrust around official data."
Why it matters: A 0.2-percentage-point technical adjustment to how portfolio fees, software, and legal services are priced won't change actual consumer prices — but it lands at the precise moment the White House is publicly demanding rate cuts, giving critics fresh ammunition to argue that statistical revisions serve political optics rather than economic measurement, even when the underlying methodology is defensible.
