The Federal Reserve's favorite gauge for US inflation came in hotter-than-forecast for April, according to Commerce Department data on Friday that suggested the central bank will raise interest rates again in June and July versus expectations for a pause
WASHINGTON (Pakistan Point News / Sputnik - 26th May, 2023) The Federal Reserve's favorite gauge for US inflation came in hotter-than-forecast for April, according to Commerce Department data on Friday that suggested the central bank will raise interest rates again in June and July versus expectations for a pause.
All key metrics in the so-called Personal Consumption Expenditures, or PCE, Index rose for last month against forecast levels as the Fed keenly looked for indicators that would compel a hold on its higher-for-longer monetary policy that has already seen 10 rate hikes over 15 months.
For the year to April, the PCE Index expanded at 4.4% versus forecasts for a 4.3% and previous growth of 4.2%. For the month of April itself, it jumped 0.4% against an expected 0.3% and a prior expansion of 0.1%.
"Core" PCE, which strips out volatile food and energy prices, gained 4.7% on an annualized basis versus both the projected and previous rate of 4.6%. On a monthly basis, it rose 0.4% against the forecast and prior rate of 0.3%.
"Inflation is a problem and the consumer remains red hot," economist Adam Button said on the ForexLive forum. "The Fed is going to hike again and now the odds are 58-42% for June and July is 100% with a slight chance of another hike. At some point the Fed will have to pause and evaluate but we're lapping some very high energy numbers now and it's not enough to get inflation to a 3-handle. At minimum, the Fed needs to start seeing some monthly numbers at +0.3% or lower."
A broader gauge for US inflation, called the Consumer Price Index, or CPI, hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April, for its slowest expansion in two years.
The Fed has raised rates by 10 times since the end of the coronavirus pandemic in March 2022, adding a total of 500 basis points, or 5%, that has brought rates to a peak of 525 basis points, or 5.25%.
The central bank's next rate decision is on June 14.
Federal Reserve Governor Chris Waller suggested on Wednesday the central bank may skip a rate increase in June but still lean towards a July hike depending on inflation data. St. Louis Fed President James Bullard, one of the more aggressive advocates for tighter monetary policy, has suggested at least two more rate hikes this year, totaling 50 basis points, that would bring rates to a peak of 5.75%.
Some economists, however, warn that the central bank is going overboard with its inflation fight and the consequence will be a recession. Gross domestic product grew by just 1.3% for the first quarter of this year versus the 2.6% during the final quarter of 2022, the latest reading of the Commerce Department showed.
