WASHINGTON- US. Consumer spending rose more-than-expected in April, boosting the economy’s second-quarter growth prospects, and inflation The US Federal Reserve tightened, which could result in the Federal Reserve keeping interest rates higher for some time.
Consumer spending rose 0.8 percent last month, the Commerce Department said on Friday. Data for March has been revised upwards to show spending rose 0.1 percent, rather than flat as previously reported. Economists polled by Reuters had forecast consumer spending accounting for more than two-thirds US. Economic activity up 0.4 percent.
The surge in consumer spending last month dampened economists’ expectations for a sharp slowdown this quarter. Although first-quarter consumer spending grew at the fastest rate in almost two years, much of the growth was concentrated in January. The weakness in February and March left consumer spending on a lower growth trajectory at the start of the second quarter.
Consumer spending will be supported by strong wage increases in a tight labor market. This contributed to the resilience of the labor market, a rebound in factory production and a pick-up in business activity, and indicated that the economy is regaining momentum after growing at an annual rate of 1.3% in the first quarter.
Still, consumer spending has slowed since January’s surge as Americans have become more price-sensitive.
Government welfare payments are also falling and most low-income households are believed to have used up savings accumulated during the COVID-19 pandemic.
Borrowing has also become very expensive after the Fed hiked rates by 500 basis points since March 2022 US. To tame it, the central bank launched its fastest monetary tightening campaign since the 1980s inflation. Banks are also tightening their lending after the recent turbulence in the financial markets.
Minutes of the Fed’s May 2-3 monetary policy meeting, released on Wednesday, showed that policymakers “generally agreed” that the need for further rate hikes had “become more uncertain”.
The personal consumption expenditure (PCE) price index rose 0.4 percent in April after rising 0.1 percent in March. In the 12 months to April, the PCE price index rose 4.4 percent after rising 4.2 percent in March.
Excluding the volatile food and energy components, the PCE price index rose 0.4 percent after rising 0.3 percent in March. The so-called core PCE price index rose 4.7 percent year-on-year in April after gaining 4.6 percent in March. The Fed tracks the PCE price indexes for its 2 percent inflation Goal.
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