FxPro Market Review: US Spending Grows Faster Than Income, Accelerating Price Increases

Personal spending in American households increased by 0.8% in March, maintaining the previous month's rate and surpassing the expected growth rate of 0.6%. The growth in disposable income was more modest, with a 0.5% increase in March (in line with expectations) after a 0.2% increase in February. The rise in household spending may be attributed to increased confidence in future income amid a robust job market, although pessimists may view it as a result of inflationary pressures.

Senior Analyst at FxPro, Alex Kuptsikevich, noted that the savings rate dropped to 3.2% in March. This rate was temporarily lower in mid-2022, at a time when the public had accumulated significant savings, and the government had implemented new pandemic payment programs. During the mortgage boom from January 2005 to April 2008, the rate was consistently below the current level, a comparison that raises concerns.

Traders in currencies and stock markets pay special attention to the core personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge. This inflation indicator maintained a year-on-year pace of 2.8%, contrary to expectations of an economic slowdown to 2.6%. The personal spending price index rose from 2.5% to 2.7%.

The likelihood of the Federal Reserve cutting interest rates in June has fallen from 70% a month ago to around 10%. Expectations for the initial rate cut in the new cycle have now shifted to September (with a 60% probability). Meanwhile, the idea that there may be no cuts this year, or even an imminent increase, is gaining attention.