NEW YORK (Reuters) – U.S. consumer spending rebounded sharply in January amid strong income growth, while inflation accelerated, which could add to financial markets fears that the Federal Reserve could continue raising interest rates through summer.
The personal consumption expenditures (PCE) price index, tracked by the Federal Reserve for monetary policy, shot up 0.6% last month after gaining 0.2% in December. In the 12 months through January, the PCE price index accelerated 5.4% after rising 5.3% in December.
Excluding the volatile food and energy components, the PCE price index increased 0.6% after climbing 0.4% in December. The so-called core PCE price index increased 4.7% on a year-on-year basis in January after advancing 4.6% in December.
MARKET REACTION:
STOCKS: U.S. stock index futures extended losses. BONDS: U.S. Treasury bond yields rose.FOREX: The U.S. dollar extended gains against the euro and yen.
COMMENTS:
PRIYA MISRA, HEAD, GLOBAL RATES STRATEGY, TD SECURITIES, NEW YORK
“The flattening of the yield curve makes sense, the front end. The pressure on the Fed remains high. This is increasing pressure on the Fed to keep going. They clearly have some work to do to slow the economy down and bring inflation back to 2%.”
“This is not good news for risk assets because this is going to keep pressure on the Fed.”
“It might put pressure on whether they go 50 basis points in March. That’s going to be a debate for the market. Do they increase the magnitude of hikes? That will be in focus.”
PHIL BLANCATO, CHIEF EXECUTIVE OFFICER, LADENBURG THALMANN ASSET MANAGEMENT, NEW YORK”This PCE number which to me is a vital number, it’s the Fed’s premier preferred gauge of measuring inflation clearly suggests that the Fed has more to do, now you’re looking at probably half of 1% rise in March.””They (Fed) are data dependent, and they are being somewhat careful to not overstep, but the good chance of 1/2 of 1% (hike) in March and then looking like a May and or June rise.””In other words, what this means is the Fed is not done, further pressure on yields to push higher, the battle against inflation has not yet won, and volatility for the stock market.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The number are hotter than expected. We’ll see pressure on yields, and we see stock futures going lower.”
“The Fed is probably going to be more hawkish. Whether that translates to a 50 basis-point rate hike in March remains to be seen. But we are likely to see three more rate hikes and the tightening cycle is likely to end in the second half of the year.”
“These are ugly numbers, and this is the Fed’s preferred index, so we should expect hawkishness until the second half of the year.”
“The economy remains strong. The surprising factor is the consumer. Consumers are spending.”
(Compiled by the Global Finance & Markets Breaking News Team)
