Published: Tue, May 01, 2018
Money | By Bruce West

US Fed likely to leave rates alone for now

US Fed likely to leave rates alone for now

The price index for personal consumption expenditure (PCE) in March rose 2 percent from a year ago, said the Commerce Department on Monday. It is calculated by staff at the Dallas Fed, using data from the Bureau of Economic Analysis (BEA).

The dollar, traded against a basket of major currencies, rose 0.4 percent to 92.221.DXY, the highest since January 11 and higher than where it started the year.

The table below present data on the Trimmed Mean PCE inflation rate and, for comparison, overall PCE inflation and the inflation rate for PCE excluding food and energy.

The Fed concludes its two-day meeting on Wednesday. Later this week, the US central is scheduled to hold a meeting on monetary policy, though no major changes are expected.

BNY Mellon strategists said that if the Fed drops any cautionary comments on its inflationary outlook, then it would signal a growing confidence among policymakers that inflation has firmed up enough for an increase in forecasts. This measure had been consistently moving on up, moving on up since it bottomed at 1.3% in August previous year.

With year-over-year core PCE seen at or near 2%, its statement will acknowledge rising inflation, and perhaps even applaud meeting its dual mandate of maximum employment and stable prices.

Due to expectations of a strengthening U.S. economy, last week saw USD/CAD climb from 1.2765 to 1.2824. But the rise of the 10-year yield to a record high hasn't done much for bank stocks, because short-term rates have climbed even more.

Annual inflation readings in March of past year were held down by large declines in the price of cell phone service plans.

"The key USA dollar driver has been the divergence between economic data in the US and the rest of the world, and US data continues to look comparatively robust" Morgan Stanley said.

Fed officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting.

Markets are also focused on Friday's April U.S. non-farm payrolls report, which could provide further signs of strength.

In addition to the good inflation data, household consumption also stepped up growth pace in March.

When adjusted for inflation, consumer spending increased 0.4 percent in March.

Market reaction: Investors were prepared for higher consumer spending in March and the PCE index reaching 2% after first-quarter GDP (http://www.marketwatch.com/story/first-quarter-gdp-slows-to-23-but-that-isnt-so-bad-2018-04-27) was released on Friday. The data was included in last Friday´s advance first-quarter gross domestic product report. Wages and salaries increased 0.2 percent in March after increasing 0.4 percent in February.

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