Cleveland Fed President Plans To Keep Raising Interest Rates Amid Inflation Surge


Inflation figures released recently are higher than expected, with core prices rising 4.7% in April from a year earlier, up from 4.6% in March. The Fed officials anticipated inflation to ease, but the figures complicate policymakers’ next meeting debate over whether to raise interest rates or keep them steady.

The United States announced that the annual rate of the core PCE price index in April was 4.7%, which was expected to be 4.60%, and the previous value was 4.60%. The core PCE price index in the United States recorded a monthly rate of 0.4% in April, the highest since January…

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WSJ recently reported that Cleveland Fed President Loretta Mester said she wants to keep raising interest rates until she is confident that the next move is equally likely to increase as a decrease. Officials could decide whether to resume increases in July, skipping a rate rise in June to assess the effects of their past increases and banking-sector strains.

However, amidst this economic uncertainty, consumer spending has risen sharply. The primary driver of economic growth, consumer spending rose 0.8% in April, up from 0.1% increase in both February and March. Americans spent more on vehicles and services such as insurance and healthcare. Adjusted for inflation, consumer spending rose 0.5% in April.

Source: Haver Analytics, WSJ

The spending pickup is a testament to the underlying resilience of the consumer, as noted by Wells Fargo economist Shannon Seery. Strong labor market and wage gains support the consumer, fueling consumer spending. Personal income rose 0.4% in April, for the largest increase since January, as Americans’ wages grew.

Retailers are reporting mixed signals on how shoppers are coping with rising prices. Urban Outfitters Anthropologie and Free People stores saw double-digit sales gains last quarter, offsetting a drop in sales at its namesake brand. On the other hand, Lowe’s reported that inflation was affecting sales of big-ticket items and spending on do-it-yourself projects.

The fight over lifting the government’s borrowing limit is another economic threat. With negotiators zeroing in on a deal ahead of June 1, when the government could run short of money to pay all its bills on time, prolonged talks could push the economy into recession or, should the government default on its debt, trigger a financial crisis.

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