The Federal Reserve could be pushing the U.S. economy into dangerous territory with its highly restrictive policy stance according to economists, with some warning that prolonging higher rates could begin to restrict economic growth.
Yesterday (Thursday) saw the monthly Personal Consumption Expenditures (PCE) price index data release. Excluding the cost of food (which increased by 0.5% on the month and 2.4% on the year) and energy (which decreased by 1.4%) the PCE index increased by 0.4% compared with the previous month and 2.8% year-on-year. While personal income increased, spending actually fell by 0.1%.
The PCE data is a key inflation reading, with this data broadly in line with expectations. Although the core and headline readings remain above the much lauded 2% target set by the Federal Reserve, it is notable that the core data was the lowest it’s been in two years, which signals a longer term trend towards the downside.
French Bank Société Générale’s chief US economist, Stephen Gallagher said the data is positive. He commented “Overall, [the report] is meeting the expectations, and some of the worst fears in the market weren’t met. The key is we’re not seeing the broad nature of increases that we had been more fearful of.”
The president of the Atlanta Federal Reserve, Raphael Bostic also welcomed the figures, saying, “If you look over the long arc, the line is still going down. That’s an important thing to keep in mind.”
Emerging alongside the PCE figures, the latest unemployment report showed that more Americans are finding it harder to get back into the jobs market after a layoff. The number of continuing jobless claims was up by 45,000 workers to 1.9 million individuals, more than the expected figure of 1.88 million. The number of new jobless claims was also up by 13,000 to 210.000.
Gold prices ticked up with this data release, gaining around £9.50 ($12) in the aftermath to reach £1,625 ($2,054). With £1,820 ($2,300) expected in the coming months, this represents an excellent opportunity to buy. Act now.
