US' April spending, inflation numbers boost the case for another rate hike, says ING Research

May 28, 2023 / 02:25 PM IST

Federal Reserve Board Chairman Jerome Powell holds a news conference in Washington

The minutes of the Federal Reserve's latest May meeting revealed divisions within the rate-setting committee over the future course —to raise interest rates or hit a pause.

ING Research believes the stronger US spending and inflation data for April will give an upper hand to Fed officials like Neel Kashkari and James Bullard, who are of the view that further policy tightening is needed till inflation comes below the 2 percent target. The Federal Reserve will be meeting on June 13 and 14.

US real consumer spending for April rose 0.5 percent on-month, higher than the expectation of 0.3 percent, which is likely to lead to upward revisions of second-quarter GDP expectations. Adding to that, US core PCE inflation for April also came at 4.7 percent, above estimates of 4.6 percent.

The hotter-than-expected readings of these two scales, the possibility of the debt-ceiling drama being resolved favourably and if jobs numbers for May, expected on June 2, are strong, then an interest rate hike looks more likely than not, ING said.

If the jobs data reflects a resilient labour market, ING anticipates the Fed to raise interest rates by another 25 basis points in the June meeting. One basis point is one-hundredth of a percentage point.

However, the aggressive policy tightening by the US Fed has also translated into weakening pricing power for corporates. "This indicates that we should expect inflation to slow sharply in the second half of the year - the problem is we aren't confident that the Fed will wait for it to happen," ING Research said in its report.

In such a scenario, the research firm fears that the result of this overtightening of the monetary policy along with tougher lending standards will push the economy into a painful recession by restricting the flow of credit. ING expects interest rate cuts further down the line.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​​​​​​​​​​​​​​​​​​

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

`); } if (res.stay_updated) { $(".stay-updated-ajax").html(res.stay_updated); } } catch (error) { console.log('Error in video', error); } } }) }, 8000); })