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Higher interest rates did not hit the consumer hard or bring inflation back to the target level, according to the personal consumption expenditures report for April today. Inflation rose 4.4% year-on-year in an acceleration from 4.2% previously while personal spending rose 0.8% in the month.
Bank of America reaffirmed its fundamental expectation that the Federal Reserve will not hike interest rates in June, although the bank maintains its bias towards rate hikes in the future, noting that it is a “close call”. According to the BofA, three conditions for a Fed rate hike must be met: 1) strong economic data, 2) an increase in the debt ceiling, and 3) easing pressure from regional banks.
The bank also believes that inflation is still too persistent for the Fed to commit to a prolonged moratorium on interest rate increases. Even if the Fed decides to forgo a June rate hike, Bank of America is suggesting it will keep the possibility of a July rate hike on the table.
Separately, economists at Goldman Sachs continue to chase their tails. After calling a pause after pressure from March Bank and then seeing a rally anyway, they are now rocking their June call.
“While we continue to expect the Fed to pause cuts in June, stronger-than-expected consumer spending and inflation data this morning and the wide range of views by FOMC participants on the appropriate policy path make this a close call.” , said economists at Goldman Sachs. Books today.
The market is room for a 70% chance of going up in June and a 100% chance of going up in June or July.