All eyes were firmly fixed on the latest US GDP and PCE data last week.
On Friday, the US core PCE for March – the measure of the spending on goods and services less energy and food – rose by 0.1% in March, after rising 0.3% in February. US consumer spending remained persistent yet largely unchanged during the month of March as we saw consumers prioritise service-based purchases made up of a decline in goods. This shows that whilst inflation is still elevated, it is slowing.
Despite this, economists could not ignore the fact that US GDP growth figures, released last week, showed how the tide may finally be turning in the Fed’s year-long struggle with sticky inflation. Q1 reports saw GDP come in below economists’ forecasts of a 2% rise at 1.1%, following a larger 2.6% increase in Q4 2022. So, whilst consumer spending remained strong, it clearly could not offset the reduction in business inventories as companies anticipate an eventual decrease in overall demand. All signs, in short, point to another 25-basis point interest rate hike this week from the Fed, which the market has now already priced in.