Economic fundamentals continue to rise just two weeks before the Federal Reserve announce the rate of interest for March. The Fed’s preferred measure of inflation – the Personal Consumption Expenditures Price Index – is now at 1.9%, exactly in line with the bank’s long term target of inflation at 2% or just below.
- The higher cost of goods such as gasoline pushed U.S. inflation in January to the highest level since 2012, offsetting rising household incomes and raising the odds of an increase in interest rates soon.
- A government report that tracks consumer spending showed a modest increase of 0.2% last month, with incomes rising even faster at 0.4%. Economists polled by MarketWatch has forecast a 0.4% gain in spending.
- Yet an inflation index known as PCE also jumped 0.4% in January, pushing the increase over the last 12 months to 1.9% from 1.6% at the end of 2016.
- German inflation accelerated further in February, reaching its highest level in four-and-a-half years and surpassing the European Central Bank’s price stability target of just under 2 percent, preliminary data showed on Wednesday.
- German consumer prices, harmonized to compare with other European countries (HICP), rose by 2.2 percent on the year after an increase of 1.9 percent in January, the Federal Statistics Office said.
- This was the highest annual inflation rate since August 2012 and came in slightly stronger than a Reuters consensus forecast of 2.1 percent.
- The case for raising U.S. interest rates has become “a lot more compelling” since the November election given rising confidence and expectations for fiscal stimulus, New York Fed President William Dudley, among the most influential U.S. central bankers, said on Tuesday.
- We have seen a “very large” rise in household and business confidence and “very buoyant” financial markets since the election, “and we have the expectation that fiscal policy will probably move in a more stimulative direction,” he said on CNN.
Market Watch: Fed’s Williams says there will be ‘serious consideration’ of interest rate hike at March meeting
- An interest-rate hike “is on the table for serious consideration” at the Federal Reserve’s upcoming policy meeting in mid-March, said San Francisco Fed President John Williams on Tuesday.
- In a speech to the Santa Cruz Chamber of Commerce, Williams said he was confident the economy would continue to grow at a healthy pace even as the central bank raises rates.
- The Fed is really doing its best to convince the market that a March rate hike is coming, and it seems to be working.
- The March rate hike odds have soared as high as 68% over the past hour – they were at 54% before Dudley started talking – effectively above the Fed’s permissive threshold. As a reminder, the Fed usually hikes only if the market prices in at least a 70% probability of such an event. Well, we are now almost there.