Inflation and household consumer spending picked up again in May, leading markets to hope for a less aggressive monetary policy stance than announced by US Federal Reserve members.
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The PCE index, which the Federal Reserve (Fed) favors in its decisions, released Friday by the Commerce Department, marked time again in May after an unexpected rise in April, to come in at 3.8% over the year, up from 4.3 % a month before.
Better yet, inflation fell to just 0.1% over the month, in line with analysts’ expectations, according to Briefing.com consensus, a significantly lower reading from April, again (+0.3%) .
Taking to Twitter, the White House rushed to welcome the new data, which it said was “new evidence” of the positive impact of “bidenomics,” a nickname given to economic reforms initiated by President Joe Biden.
“Yesterday’s growth was above expectations, wages are rising and now the PCE index shows progress in the fight against inflation, although much remains to be done,” commented the CEO.
A trend that was also welcomed by the markets and reassured by this data: Shortly after Wall Street opened, all major indices were up.
On top of inflation, household spending also dominated the period, rising modestly by 0.1% in the month versus 0.6% in April, despite still solid income growth (+0.4% versus +0.3% in April). ).
“Even with consumption growth of 0.2% in June, it would only come in at 1% in the second quarter, a far cry from the performance in the first (+4.2%),” estimated Ian Shepherdson, chief economist at Oxford Economics. “We can therefore expect much weaker GDP growth in the second quarter” than in the first.
Data revised by the Commerce Department on Thursday showed first-quarter growth of 2% on an annualized basis, well above initial estimates (+1.3%), driven precisely by consumption and exports.
Should the slowdown in both consumption and inflation be confirmed, will this still be enough to encourage the Fed to continue the pause it started at the last meeting in mid-June and not announce a new rate hike at the end of July?
Not sure, according to Nationwide chief economist Kathy Bostjancic, who on the contrary believes that “persistent inflation and the resilience of consumption should keep the Fed clinging to the idea of a fresh hike in July after its June pause.”
Especially as core inflation, which excludes food and energy prices and is more closely monitored by the Fed, remains strong at 4.6% over the year, declining less sharply than the broader index.
There is another measure of inflation, the CPI index, which is used in particular to calculate pensions. In May, the rate had also slowed, falling to 4% yoy and 0.1% mom.
To combat inflation, the Fed has tightened monetary policy significantly since March 2022, with ten consecutive hikes totaling five percentage points, and has now brought its benchmark interest rate to a range between 5% and 5.25%.
On Wednesday, Fed Chair Jerome Powell indicated that at least two more rate hikes are ahead, possibly back-to-back, but the Federal Reserve will base its next rate hikes on the development of macroeconomic data.
In addition, he had estimated that inflation in the United States might not reach its target of 2% per year until 2025.
The next Fed meeting is scheduled for July 25-26.