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Fed Prepared for Inflation Over 2% Target
Growth in Personal Consumption Expenditures (PCE) is the Federal Reserve’s preferred measure of inflation. PCE rose 2.0% in March, which was the first time in more than a year that it was on target. Excluding food and energy costs, prices rose 0.2% in March from February and were up 1.9% for the year. Several factors are pointing to a sustained increase in inflation including low unemployment, tax cuts and rising raw material costs. Investors will be closely scrutinizing the Fed’s statement following its May meeting. In 2018, several Fed members have spoken about a “symmetric” inflation target, which indicates that 2% is not a ceiling but rather a central inflation target.
Source: Wall Street Journal, Financial Times
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Are Tax-Cuts Impacting Growth?
Gross Domestic Product expanded at an annual rate of 2.3% in the first quarter. The pace beat economist survey estimates, but was somewhat lower than recent quarters as consumer spending grew at the slowest pace in nearly five years. Meanwhile, businesses maintained robust spending including nonresidential fixed investment, which grew at a 6.1% rate. The Federal Reserve expects growth to accelerate later this year and for GDP to grow by 2.7% in 2018. Businesses have posted strong first quarter sales and earnings growth in their first results after the tax cuts signed into law in December. Profits are growing fastest at companies in the energy, technology, financial and industrial sectors.
Source: Wall Street Journal
