U.S. wages and consumer spending accelerated in the first quarter, adding pressure on the Federal Reserve to hike rates more aggressively to keep inflation in check. HeleneBraunn reports
The ECI is widely watched as an indicator of the current labor market situation. In essence, it measures inflation in wages. Especially during the Alan Greenspan era of the Fed, the ECI was seen as the most reliable measure to track labor costs.Friday by the Commerce Department was the Personal Consumption Expenditures price index, the Fed’s preferred measure to track inflation.
The PCE, which tracks inflation in a more comprehensive way than the widely followed consumer price index , climbed 6.6%, up from 6.4% in February, a fresh 40-year high. The Fed is widely expected to raise the benchmark U.S. interest rates by 50 basis points at its May meeting next week. In a panel hosted by the International Monetary Fund last week, Fed Chair Jerome Powellthat “it may be that the actual [inflation] peak was in March, but we don’t know that, so we’re not going to count on it.” He added that it might be appropriate to “move a little more quickly” in tightening monetary policy to keep inflationary pressures in check.
With the ECI growing at such a fast pace and PCE at a fresh high, analysts are increasingly expecting the Fed to raise its interest rate by 75 basis points in June, according to data from the . Market-implied odds of a 75 basis point increase in June are currently 99.1% versus 15.9% a month ago.
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