Fed's Preferred Inflation Gauge Jumps 4.4% in April 2023, Boosting Chances of Rate Hike
In April 2023, the Federal Reserve's favored inflation metric surged, intensifying expectations for another interest rate increase to combat persistent inflation pressures.
Diccon Hyatt is a seasoned financial and economics journalist who has extensively covered the evolving economy during the pandemic era. With hundreds of articles simplifying complex financial issues, he focuses on how economic trends impact personal finances and markets. His experience includes work at U.S. 1, Community News Service, and the Middletown Transcript.
April 2023 saw a significant rise in the Federal Reserve’s preferred consumer price index, marking a challenging setback in the ongoing battle against inflation.
According to data released by the Bureau of Economic Analysis, Personal Consumption Expenditures (PCE) prices climbed 4.4% compared to April 2022, up from a 4.2% increase in March. This figure exceeded economists’ expectations, who anticipated a 4.3% rise. Core inflation, which excludes volatile food and energy costs, also increased to 4.7% year-over-year, reaching levels not seen since November.
Despite rising prices, consumers increased spending across nearly all major categories, with inflation-adjusted consumer spending growing 0.5% from March to April—the largest monthly increase since January.
This persistent inflation combined with strong consumer spending heightens the probability that the Federal Reserve will implement its 11th consecutive interest rate hike during its June meeting. Data from the CME Group’s FedWatch tool indicated that the likelihood of a rate increase rose to nearly 60%, up from 51.7% the previous day.
“American consumers remained highly active in early spring, while inflation accelerated—an unwelcome sign for the Fed,” noted Sal Guatieri, senior economist at BMO Capital Markets.
The Fed’s ongoing strategy of raising interest rates since March 2022 aims to curb inflation by discouraging borrowing and spending, allowing supply and demand to rebalance. Additionally, the Fed seeks to temper the overheated labor market to prevent a wage-price spiral.
Recently, Fed officials have been split between 'hawks' advocating for further rate hikes to firmly control inflation, and 'doves' favoring a pause to avoid triggering a recession amid economic pressures like the debt ceiling tensions and banking sector concerns. April’s inflation report strengthens the hawks’ position.
James Knightley, chief international economist at ING, commented, “The U.S. economy continues to surprise skeptics, with robust spending keeping inflation elevated. If the debt ceiling issues resolve positively and upcoming jobs data is strong, a June rate hike appears increasingly probable.”
Correction—June 2023: The inflation-adjusted consumer spending increase in April is 0.5%, as previously misstated.
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