PCE Price Index (Year-over-Year) vs Yield Curve Spread (10Y - 2Y)

What PCE Price Index (Year-over-Year) measures

The Personal Consumption Expenditures (PCE) price index is the Federal Reserve's preferred inflation measure. It tracks prices of goods and services consumed by households and adjusts its basket dynamically as consumers shift spending patterns.

PCE at 2.5% is closer to the Fed's 2% target than CPI, giving the Fed more room to consider rate cuts. The PCE tends to run 0.3-0.5 points below CPI because it accounts for consumer substitution (switching to cheaper alternatives when prices rise). For executives, the PCE trajectory suggests inflation is on a downward path, which should eventually lead to lower borrowing costs.

What Yield Curve Spread (10Y - 2Y) measures

The yield curve spread measures the difference between the 10-year and 2-year Treasury yields. When positive (normal), longer-term bonds pay more. When negative (inverted), it historically signals recession risk.

The yield curve has un-inverted to +0.41 percentage points after being inverted for much of 2023-2024. Historically, the yield curve un-inverting and steepening often occurs just before a recession starts — the recession signal is not the inversion itself, but the re-steepening. For executives, this is a watch-closely moment: the economy may be entering a transition period.

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