Recently, I’ve noticed that many investors in Taiwan are still a bit confused about PCE data. In fact, this indicator is far more important than CPI, yet it’s often overlooked. Today, I’d like to share some of my observations on PCE, and I hope they’ll be helpful to everyone.

First, the basics: PCE is the Personal Consumption Expenditures Price Index, compiled by the U.S. Department of Commerce. It is used to measure changes in the prices of the goods and services that people in the United States consume in their daily lives. Why does the Fed pay special attention to it? Because the statistical weights of PCE are dynamically adjusted—fine-tuned once each quarter—so it can better reflect consumers’ actual purchasing behavior. Unlike CPI, which has fixed weights and is only updated every two years. And PCE covers a much broader scope; it includes almost all personal consumption expenditures, making it more comprehensive than CPI, which only covers households’ direct consumption.

From my own experience, whenever PCE data is released, the market reaction is usually much more intense than it is for CPI. That’s because investors know the Fed determines its interest-rate policy based on PCE. In simple terms: rising PCE signals inflation is heating up, and the Fed may raise rates; falling PCE signals inflation is cooling down, and the Fed may cut rates. This directly affects the trends of U.S. stocks, stocks in Taiwan, the U.S. dollar, and the New Taiwan dollar.

One important reminder here: whenever PCE is released, what the market really focuses on is “core PCE,” meaning the data after excluding food and energy. Why? Because food and energy are too volatile and can easily distort the true inflation trend. For example, if oil prices rise in a given month due to geopolitical factors, the overall PCE may increase, but core PCE might only grow slightly. In that situation, the Fed is unlikely to raise rates easily, because the increase mainly comes from short-term fluctuations, not from a genuine rise in consumer prices.

I’ve been tracking the relationship between PCE data and the actual market response. Usually, PCE is released on the Friday evening of the fourth week of each month Taiwan time—right when the U.S. stock market opens. After the data is announced, U.S. stocks will move immediately, and when Taiwan stocks open the next day, they will respond accordingly as well. For investors in Taiwan, this is crucial, because Taiwan’s electronics industry is highly correlated with U.S. technology stocks.

The logic behind how core PCE data impacts markets is roughly this: if core PCE is higher than expected, the market will anticipate the Fed will raise rates, and U.S. tech stocks typically fall, because higher interest rates suppress corporate earnings. Conversely, if core PCE is lower than expected, expectations for rate cuts build up; U.S. stocks tend to rise, and Taiwan’s electronics stocks usually rise along with them. However, it’s important to note that Taiwan’s stock market is influenced not only by PCE, but also by Taiwan’s domestic economic data, cross-strait relations, and other factors. So PCE’s impact is supportive, not decisive.

The effect on the NT dollar exchange rate is also quite direct. Core PCE higher than expected → stronger expectations for Fed rate hikes → the U.S. dollar appreciates → the NT dollar depreciates; the opposite leads to NT dollar appreciation. This has a real impact on our costs when investing in U.S. stocks: when the NT dollar depreciates, converting NT dollars into USD is cheaper; when the NT dollar appreciates, selling U.S. stocks and converting back to NT dollars allows you to receive more.

Over the long term, core PCE also reflects the U.S. consumer’s purchasing power. The U.S. is Taiwan’s largest export market, and about 20% of Taiwan’s total exports go to the U.S., mainly electronic products. So if core PCE remains stable at around 2%-2.5% (the Fed’s target range), it indicates stable U.S. consumer demand, which is positive for the outlook of Taiwan’s electronics exports. Conversely, if core PCE stays above 3% for a long time, it suggests that U.S. consumers’ willingness to spend is weakening, putting pressure on Taiwan’s exports.

In actual trading, my approach is: one hour before the release, I check market expectations to confirm my positions and stop-loss points. After the data is released, based on the difference between the actual results and expectations, I respond case by case. For example, if core PCE is below expectations, I consider adding positions in tech and electronics stocks. If it’s above expectations, I will first cut losses and then observe. When core PCE stays close to expectations, the market typically enters a consolidation range, and this is when I tend to stay on the sidelines.

The key is not to rely too heavily on PCE data. It is only one of the factors that influence the market, so it’s necessary to combine it with broader judgment from other data, such as non-farm payrolls, GDP, and individual stock performance. Also, after PCE is released, price volatility can be very large. So you must set stop-loss and take-profit levels, strictly control position sizes, and don’t let short-term fluctuations pull you along.

Honestly, understanding the logic behind PCE data has greatly helped my investment decisions. By tracking the long-term trend of core PCE, I can better judge the direction of the Fed’s interest-rate policy, and then adjust my long-term allocation—for example, reducing high-valuation tech stocks during rate-hike cycles, and increasing growth stock allocations during rate-cut cycles. The results are much better than simply following the trend blindly.