Instant view: Stubborn US April PCE inflation revives focus on June Fed hike

© Reuters. FILE PHOTO: A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, U.S., June 13, 2022. REUTERS/Lucy Nicholson

NEW YORK (Reuters) - U.S. consumer spending increased more than expected in April, boosting the economy's growth prospects for the second quarter, and inflation picked up, which could see the Federal Reserve keeping interest rates higher for some time.

The Commerce Department said on Friday that the personal consumption expenditures (PCE) price index increased 0.4% in April after rising 0.1% in March. Year to date, the PCE price index increased 4.4% after advancing 4.2% in March.

Excluding the volatile food and energy components, the PCE price index climbed 0.4% after rising 0.3% in March. The so-called core PCE price index increased 4.7% on a year-on-year basis in April after gaining 4.6% in March. The Fed tracks the PCE price indexes for its 2% inflation target.

MARKET REACTION:

STOCKS: S&P 500 futures were up 0.1%

BONDS: The yield on 10-year Treasury notes rose and was up 1.6 basis points at 3.831%; The two-year U.S. Treasury yield, rose and was up 7.9 basis points at 4.589%

FOREX: The Euro pared a gain and was up 0.09% and the dollar index was off slightly

COMMENTS:

PRIYA MISRA, HEAD GLOBAL RATES STRATEGY, TD SECURITIES, NEW YORK

“Strong both personal spending and income data, as well as more importantly, PCE and inflation. It was driven by core services ex-shelter, which we know the Fed cares about. It’s the one they’ve been tracking closely, and there’s not sign of that slowing down. That’s why the market is fully pricing in a hike in the next two meetings: 13 bps in June and 12 bps in July. The reason it’s still split is this idea of a skip, that some Fed officials feel they want a little more time. And that’s why they might skip in June and hike in July. But I think they have two things ahead. The debt ceiling gets resolved and you get a solid payrolls. Anything above 100,000 will mean a 25 bps hike is almost a done deal.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“Why position for a recession that has already happened? Gross domestic income fell two quarters in a row. Inflation is still too hot to handle, but it’s beginning to simmer down. Now that credit is tightening and the Fed is likely to hold rates high for longer than necessary, it could be a tough slog. A portfolio for tough times is very different than a portfolio for bad times. We can ride the momentum wave, but that can crash against the shores of economic reality. So we prefer quality and lower volatility exposures.”

ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK

"The PCE showed that inflation remains stubborn. It feels like we're getting the debt ceiling drama close to the finish line, but we still have to be concerned about what's next for the Fed."

    "Any excitement we had about perhaps getting some answers on the debt ceiling, that excitement dissipates when you just have to start focusing back on the Fed and the fact that they may or may not have to raise rates again in June. "