Fresh data on inflation and unemployment claims have given Federal Reserve officials more reasons to refrain from reducing interest rates, despite signs of a slowdown in consumer spending. In February, prices paid by US producers exceeded expectations, while fewer individuals applied for and received jobless benefits than previously estimated, according to separate reports released on Thursday. These reports follow earlier data in the week indicating a rapid rise in underlying consumer prices last month.
While there are indications of a weaker start to consumer spending this year, the strength in inflation and labor data supports policymakers’ stance that they need to witness more progress before considering lowering borrowing costs. The Federal Reserve, with a dual mandate to maintain price stability and maximize employment, is widely anticipated to keep rates unchanged at a two-decade high during its upcoming meeting.
Economists at Nomura Holdings Inc. have adjusted their forecasts for rate cuts this year, anticipating the first reduction in July and a second in December, compared to their previous call for three cuts starting in June. Similarly, Stephen Stanley, chief US economist at Santander US Capital Markets LLC, expects the Fed to maintain rates unchanged until November, citing ongoing uncertainties in inflation trends.
Despite the recent strength in inflation and jobs data, retail sales figures suggest a different narrative. Retail purchases, when not adjusted for inflation, increased less than expected in February, especially after downward revisions to the preceding two months. This indicates potentially weaker economic activity in the first quarter.
In summary, while inflation and labor market indicators remain robust, the outlook for consumer spending and economic activity warrants a cautious approach from the Federal Reserve in considering any changes to interest rates.
