Key Points:
- Consumer spending has risen sharply, accelerating inflation, which adds complexity to the Federal Reserve’s decision to raise interest rates.
- Cleveland Fed President Mester aims to continue raising interest rates until she has equal confidence that the next move will be either an increase or decrease, depending on the resolution of the debt-limit standoff in Washington.
Consumers increase spending; inflation accelerates, complicating Fed’s decision on raising interest rates. Cleveland Fed President wants to keep raising rates.
Inflation figures released recently are higher than expected, with core prices rising 4.7% in April from a year earlier, up from 4.6% in March. The Fed officials anticipated inflation to ease, but the figures complicate policymakers’ next meeting debate over whether to raise interest rates or keep them steady.
WSJ recently reported that Cleveland Fed President Loretta Mester said she wants to keep raising interest rates until she is confident that the next move is equally likely to increase as a decrease. Officials could decide whether to resume increases in July, skipping a rate rise in June to assess the effects of their past increases and banking-sector strains.
However, amidst this economic uncertainty, consumer spending has risen sharply. The primary driver of economic growth, consumer spending rose 0.8% in April, up from 0.1% increase in both February and March. Americans spent more on vehicles and services such as insurance and healthcare. Adjusted for inflation, consumer spending rose 0.5% in April.
The spending pickup is a testament to the underlying resilience of the consumer, as noted by Wells Fargo economist Shannon Seery. Strong labor market and wage gains support the consumer, fueling consumer spending. Personal income rose 0.4% in April, for the largest increase since January, as Americans’ wages grew.
Retailers are reporting mixed signals on how shoppers are coping with rising prices. Urban Outfitters Anthropologie and Free People stores saw double-digit sales gains last quarter, offsetting a drop in sales at its namesake brand. On the other hand, Lowe’s reported that inflation was affecting sales of big-ticket items and spending on do-it-yourself projects.
The fight over lifting the government’s borrowing limit is another economic threat. With negotiators zeroing in on a deal ahead of June 1, when the government could run short of money to pay all its bills on time, prolonged talks could push the economy into recession or, should the government default on its debt, trigger a financial crisis.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
Join us to keep track of news: https://linktr.ee/coincu
Thana
Coincu News
