federal Reserve Policymakers received a dose of unexpectedly strong economic data on Friday, bolstering the case for further tightening of monetary policy to tame persistently high inflation.
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The Commerce Department reported that consumer spending increased 0.8 percent last month from March. That’s good news as far as showing the economy on the brink of recession goes, but bad news for policymakers looking for a slowdown that could ease upward pressure on prices.
inflation by Fed’s The preferred gauge actually rose to 4.4 percent from a year earlier, the report showed, with core prices – a key measure of underlying pressures – rising 4.7 percent from a 4.6 percent pace in March.
The Fed targets two percent inflation.
Along with what appeared to be progress in Washington on a deal to raise the debt ceiling and avoid a catastrophic US default, the data cast doubt on whether the Fed actually “pause” its rate-hike campaignas Fed Chair Jerome Powell Hinted that it could happen as early as this month.
In fact traders are now betting that the Fed will make an 11th straight interest rate hike in June, raising the policy rate from 5.25 percent to 5.5 percent.
betting earlier in the day – and in fact most of the time since Fed’s last rate hike on May 3 — reflected expectations of at least a pause, if not an end, in the Fed’s policy tightening.
“With inflation on the upside and consumer spending remaining so strong, the Federal Reserve will likely raise rates again in mid-June,” wrote Cathy Bosjancic, Nationwide’s chief economist. Orders for durable goods also increased, which helped propel the economy.
Next month’s rate hike isn’t a done deal yet: There’s still a to-read on the latest data on the labor market next Friday and inflation expected on June 13 to come before the Fed’s June 13-14 meeting. Fed policymakers also say they are watching credit conditions closely.
But expectations are rising that even if the Fed skips the June rate hike, it will pull the trigger in July. The odds in the futures market are running three to one in favor of that outcome.
Fed Governor Christopher Waller – one of the Fed’s more hawkish voices – earlier this week accelerated that notion. While key data in the coming weeks as well as uncertainty over credit conditions may favor temporarily leaving rates on hold, he said, the lack of progress on inflation points to the need for further tightening.
Other Fed policymakers have echoed that hawkish call. “Inflation so far shows no signs of cooling off, all that being said maybe we have more to do with monetary policy,” Minneapolis Fed President Neel Kashkari told Reuters on Monday.
A University of Michigan poll showed Friday that households project inflation to ease by 4.2 percent over the next year. The Fed believes that expectations about future price pressures have a strong influence on current readings.
,Reporting by Ann Safir and Michael S. Darby with reporting by Srishti Achar; Editing by Jason Neely, Chizu Nomiyama and Andrea Ricci