By Ann Saphir
(Reuters) – Federal Reserve policymakers received a dose of unexpectedly strong economic data on Friday, bolstering arguments for further monetary policy tightening to slow the economy and curb persistently high inflation.
Consumer spending rose 0.8% last month from March, the Commerce Department reported.
Inflation by the Fed’s preferred measure accelerated to 4.4% from a year ago, with core prices – a key measure of the trajectory – rising 4.7% from March’s pace of 4.6% .
The Fed aims for an inflation rate of 2%. Fed Chair Jerome Powell signaled earlier this month that it may be time for the central bank to pause its rate hike campaign after 10 consecutive months of hikes. But he and others said they will keep a close eye on the data.
That robust data, along with what appeared to be some progress in a deal to raise the debt limit and avoid a catastrophic default, pushed traders in futures contracts tied to the Fed’s key rate to bet that the Fed isn’t done yet. is raising interest rates.
“Inflation remains stubborn,” said Art Hogan, chief market strategist at B Riely Wealth. “It feels like we’re getting the debt ceiling drama close to the finish line, but we still have to worry about what’s next for the Fed.”
The implied returns on the contracts now show traders a roughly 60% chance that the Fed will raise its target range for the benchmark interest rate, currently at 5%-5.25%, by a quarter of a percentage point at the June meeting. Earlier in the day, contracts had priced in about a 60% chance that the Fed would skip a rate hike in June.
(Reporting by Ann Saphir with reporting by Shristi Achar; editing by Jason Neely and Chizu Nomiyama)
