July PCE to be announced tonight: What the market is really concerned about is whether the Federal Reserve will turn more hawkish
At 8:30 PM Beijing time on August 26, the U.S. personal consumption expenditures (PCE) price index for July will be released.
The reason this PCE is receiving high attention from the market is not just that it is an important inflation data.
More importantly, ahead of the Federal Reserve's September meeting, the market's divergence over "raise rates or keep rates unchanged" is clearly widening.
Currently, the market expects the year-on-year growth rate of the overall PCE in July to fall from 3.7% in June to around 3.6%, while the core PCE year-on-year is expected to remain at 3.3%, with a month-on-month growth rate rising from 0.1% to 0.2%.
If the data roughly meets expectations, the market may not see drastic changes.
But if the core PCE is significantly higher than expected, the situation will be different.
Core PCE still far above the Federal Reserve's 2% target
To judge U.S. inflation, one cannot just look at the overall PCE.
Because food and energy prices are highly volatile, the Federal Reserve is more focused on the core PCE, which excludes these two factors.
Currently, the market expects the core PCE to rise 3.3% year-on-year in July, unchanged from June.
This means that U.S. core inflation remains significantly above the Federal Reserve's long-term target of 2%.
What is more noteworthy is that the year-on-year increase in core PCE has been above the 2% target for 65 consecutive months.
In other words, the Federal Reserve currently still does not have sufficient reasons to declare that the inflation problem has been completely resolved.
This is also why the market has recently begun to reconsider the potential that "the Federal Reserve may continue to maintain high rates or even raise rates."
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The real complexity lies in the increasing drivers behind inflation
In the past, discussions about U.S. inflation would usually focus on wages, housing, energy, and commodity prices.
But now the situation is changing.
AI is becoming an increasingly important variable.
As investments in AI infrastructure and data centers continue to grow, there is upward pressure on the costs of computer hardware, software, and related IT.
This means that while AI can improve production efficiency, during a phase of rapid investment expansion, it may also exert new pressure on the prices of some core goods through capital expenditures and related service costs.
Additionally, energy prices cannot be overlooked.
If the situation in the Middle East continues to affect energy transportation, rising crude oil prices could eventually transmit through transportation, production, and service costs to a broader price system.
So the current inflation problem is no longer a simple matter of "excess demand or cooling demand."
But rather:
AI investment, energy prices, tariffs, financial market valuations, and supply chain changes are all simultaneously impacting the price system in the U.S.
This also makes it more difficult for the Federal Reserve to assess inflation.
The market has begun to re-price "September rate hike"
This might be the most noteworthy market variable regarding this PCE.
According to CME market pricing, investors currently expect the probability of the Federal Reserve keeping rates unchanged in September to be about 59.9%, and the probability of a 25 basis point rate hike has risen to 40.1%.
Just a week ago, the probability of a rate hike in September was only 36.0%.
In other words, in just one week, the market's bets on rate hikes have noticeably heated up.
Of course, this does not mean the market has firmly concluded that the Federal Reserve will raise rates in September.
In fact, some institutions still believe that the Federal Reserve is more likely to choose to remain on hold.
The reason is quite simple.
Currently, the already released July CPI and PPI did not indicate a significant re-acceleration of U.S. inflation.
Additionally, before the September meeting, the Federal Reserve will also see the August CPI and non-farm employment data.
So a single PCE data point is unlikely to determine September's policy.
However, it will influence the market's assessment of the entire policy path.
For Bitcoin, what really matters is "interest rate expectations"
For the crypto market, PCE itself is not the most important.
What is truly important is:
PCE → Inflation expectations → Federal Reserve policy → Dollar and Treasury yield → Risk asset valuations.
If PCE is lower than expected, the market may increase bets on future rate cuts.
If the dollar and Treasury yields weaken as a result, liquidity expectations improve, and risk assets like BTC usually receive some support.
Conversely, if the core PCE is significantly higher than expected, and the market re-bets on "high rates lasting longer" or even rate hikes, then the dollar and Treasury yields may strengthen.
This would not be good news for BTC and other high-volatility risk assets.
Therefore, what investors really need to observe is not:
"Is PCE 3.2% or 3.3%?"
But rather:
"Has this data changed the market's judgment on the Federal Reserve's future policy path?"
This is the key to how macro data translates into the BTC market.
📌 If you want to continuously track BTC, ETH, and the impact of macro data on the market, you can follow the WeChat public account "Crypto Spring and Autumn". Understand the hotspots, gain insights into the logic, and build your own judgments rather than just watching price fluctuations.
Adjustment of PCE statistical methods may become a new variable
This report also includes a detail that is easily overlooked.
The U.S. Bureau of Economic Analysis plans to comprehensively adjust the statistical methods of the PCE report by the end of September to more accurately reflect price changes in categories such as computer hardware, stock portfolio management, and legal services.
This means that the structure of future PCE data may change, and even historical data may be retroactively revised.
The importance of this issue lies in:
If the statistical methods change significantly, the market cannot simply mechanically compare future PCE data with past data.
Especially against the backdrop of rapid expansion of the AI industry, the importance of prices of computer hardware and related services is increasing.
Moving forward, the market may need to re-understand:
"How is U.S. inflation actually formed?"
What should the market pay attention to next?
In the short term, the PCE is just the first hurdle.
Next, there will be August CPI, non-farm employment, and the Jackson Hole meeting.
Particularly, remarks from Federal Reserve Chair Kevin Warsh may further influence market judgments about the future interest rate path.
The current market has already shown significant divergence regarding the September meeting.
Thus, what BTC really needs to monitor next is not just the magnitude of a single economic data point, but whether the entire macro expectation has changed.
If inflation continues to stay at high levels while employment does not deteriorate significantly, the Federal Reserve's room for rate cuts will be restricted.
If inflation moderately falls while employment continues to cool, then the likelihood of the market re-trading rate cut expectations will increase.
This is also the core macro logic in the current crypto market.
📌Mr. Web3 X: The factors truly impacting BTC are never just a single piece of data
PCE is important, but it does not exist in isolation.
The market is now facing a more complex macro environment:
Inflation still exceeds targets, AI investments continue to expand, energy prices face geopolitical risks, internal policy divergences at the Federal Reserve are widening, and market pricing for a September rate hike is heating up.
Therefore, if tonight's PCE meets expectations, the market may continue to wait for subsequent CPI, non-farm, and Jackson Hole meeting signals.
If it significantly exceeds expectations, the market's trading on "high rates lasting longer" may further intensify, and BTC and other risk assets may face greater pressure.
If it significantly falls short of expectations, it could alleviate the market's concerns about interest rate hikes.
Thus, what is truly worth monitoring next is not the PCE number itself.
But whether it has changed the market's judgment of the Federal Reserve.
—— I am Mr. Web3 X, with 6 years of growth in Web3, focused on Bitcoin, the crypto market, macroeconomics, and industry trends.
If you want to continuously track BTC, ETH, HYPE, and the impact of macro data on the market, you can also follow the WeChat public account "Crypto Spring and Autumn". Understand the trends, gain insights into the logic, and develop your own judgments rather than just focusing on price fluctuations.
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