News from the Financial Associated Press on January 28 (Editor Zhao Hao)Before the U.S. stock market opened on Friday (January 27), the latest personal income and spending report released by the U.S. Bureau of Economic Analysis showed that the Fed’s favorite inflation indicator fell significantly as expected as consumers reduced spending.
Since 2000, the Federal Reserve has used the personal consumption expenditures (PCE) price index as the main basis for judging inflation. Compared with the consumer price index (CPI), PCE is more reflective of consumer behavior.
Specific data show that the PCE price index in the United States in December 2022 rose by 5% year-on-year, in line with expectations, the lowest growth rate since October 2021, and a slowdown of 0.5 percentage points from November’s 5.5%.
The PCE price index year-on-year change data also showed that the core PCE price index, excluding food and energy, rose 4.4% year-on-year, also in line with expectations, the slowest growth rate since November 2021, slowing from 4.7% in November by 0.3 percentage points.
The core PCE price index year-on-year change Media analysis pointed out that the Fed’s previous aggressive monetary tightening policy is playing a role in the economy. Judging from the current situation, the worst round of high inflation seems to have passed, but the current level is far from the Fed’s 2% target There is still a distance.
However, this is enough to convince the market that the Fed will further slow down the pace of interest rate hikes at next week’s interest rate meeting. At its December meeting, the Fed had already slowed the pace of rate hikes to 50 basis points from 75 basis points each.
CME Group’s Fed Watch tool shows that the current market expects that the probability of the bank raising interest rates by 25 basis points at the February meeting is more than 98%, and more than half of the probability points to the Fed’s terminal interest rate falling in the 4.75%-5% range. If the forecast is true, it means that the bank is only 50 basis points away from pausing rate hikes.
Yesterday, the Bureau of Economic Analysis announced that the GDP growth rate of the United States in the fourth quarter was stronger than expected, which brought confidence in the “soft landing” back to the market. In response to this, the personal income and expenditure report sent some bad signals.
Today’s report shows that personal spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.2% month-on-month in December last year, a drop that exceeded market expectations of 0.1%, indicating that U.S. households continued to cut spending in a high-interest rate environment. Signs of the economy losing momentum.
Efraim Benmelech, a professor at Northwestern University, said the Fed’s actions are driving consumption down. Separately, rising interest rates make mortgages more expensive and weigh on home sales, which in turn leads consumers to spend less on appliances, paint and other household items.
Paul Ashworth, chief North American economist at Capital Economics, predicts that U.S. GDP will shrink by 1.5% year-on-year in the first quarter of this year. , the growth rate may be close to zero.”