The Tribune

By CHRIS ILLING

CCA @ ActivTrades Corp

In view of the slowdown in inflation, US consumers increased their consumption significantly in June. The US Commerce Department said last Friday that consumers increased their spending by 0.5 percent from the previous month. Economists had expected growth of just 0.4 percent, down from a revised 0.2 percent in May. Private consumption is a cornerstone of the US economy, which continued to grow robustly in the spring, also thanks to consumer spending.

In order to curb inflation, the Federal Reserve has further tightened the monetary policy reins and raised its key interest rate to a new range of 5.25 to 5.50 percent. Despite falling to 3 percent, inflation was still well above the Fed’s target of 2 percent. One measure of inflation that policymakers are keeping a close eye on is consumers’ personal spending. This so-called PCE core index fell surprisingly sharply in June to an annual inflation rate of 4.1 percent, down from 4.6 percent in May. Experts had only expected a decline to 4.2 percent.

This does not include volatile food and energy costs. The US economy grew much faster than expected in the 2023 second quarter. Durable goods orders and weekly labour market data also surprised on the upside.

The data is seen as an important factor that the US Federal Reserve will consider when making its next interest rate decision in September. Federal Reserve chairman, Jerome Powell, has left the door open for another hike while not ruling out a pause. The US central bank wants to base its decision on incoming data.

Upbeat economic data surprises, and strong corporate balance sheets, drove Wall Street higher during the final trading day last week. The S&P 500 was up by over 1.1 percent, and the NASDAY up by almost 2 percent. The biggest winner this week was META. The Facebook company’s second quarter revenue grew by 11 percent year-over-year to $32bn, while earnings increased by 21 percent to $2.98 per share. That was better than anticipated. The share price rose by almost 10 percent.

Across the Atlantic, the European Central Bank (ECB) also raised its key interest rate on Thursday for the ninth time in a row to its highest level since 2000 in a bid to contain inflation in the monetary union. However, the monetary watchdogs did not want to commit to their further course after the summer break.

The ECB’s head, Christine Lagarde, said: “I can assure you that we will not lower it; that’s a definite no. There is a possibility of a rate hike or a pause.” Just like the Federal Reserve, the ECB wants the inflation rate back to its target of two percent.

The prospect of an end to interest rate hikes boosted the European indices on Friday. The leading German index, DAX, rose to a new record high despite weak economic data.