Core PCE Price Index — Impact on Fed Rate Prediction Markets

How Core PCE Price Index Moves Fed Rate Prediction Markets

Personal Consumption Expenditures price index excluding food and energy — the Fed's official preferred inflation measure.

The Fed explicitly targets 2% Core PCE. A surprise above consensus is the most direct signal of policy persistence. Often described as the FOMC's 'true north.'

The Bayesian Sensitivity Model

The model calibrates a sensitivity coefficient for each indicator: how many percentage points the cut probability at the next FOMC meeting moves per standard deviation of surprise. For Core PCE, the preliminary coefficient is ±+/- 5–8pp on cut probability. This means ifCore PCE comes in 1 standard deviation above consensus (hawkish surprise), the model reduces cut probability by approximately +/- 5–8pp on cut probability.

These coefficients are preliminary until calibrated from at least 20 historical observations of Kalshi price reactions to each release. The calibration uses a regression of (surprise_zscore × sensitivity_coefficient) against observed Kalshi probability changes, cross-validated against CME FedWatch data going back to 2015.