by Mish

CME Fedwatch shows a 67.4% chance of a rate hike in June, up from a week ago.

This is despite weakening economic reports today including flat consumer spending, negative consumer spending revisions, and falling prices (if one accepts the PCE price index) which the Fed does.

March consumer spending was a modest 0.1%, yet despite a negative revision in February from 0.1% to 0.00%, consumer spending could not meet the estimate.


Based on the consumer and based on inflation, FOMC members won’t be feeling much pressure to raise rates at least not any time soon. Consumer spending was unchanged in March, even weaker than Econoday’s 0.1 percent consensus. More startling is the weakest showing in 16-1/2 years for core PCE prices which fell 0.1 percent to take down the year-on-year rate by a sizable 2 tenths to 1.6 percent.
Income is also disappointing, up only 0.2 percent with the wages & salaries component posting a very weak 0.1 percent rise. Consumers nevertheless managed to move money into the bank as the savings rate rose 2 tenths to 5.9 percent (which is another factor behind the weak spending).
The core PCE index is the key inflation gauge for the FOMC and prior to this report members were expressing confidence that it was stable and generally headed toward their 2 percent target. And overall prices which moved above target in February are now back below target, falling a monthly 0.2 percent with the year-on-year rate down a steep 3 tenths to 1.8 percent. First-quarter economic data proved surprisingly weak even by first-quarter standards. The economy has catching up to do.

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Mike “Mish” Shedlock

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Personal Income Flat, Consumer Spending Weak, Real Disposable Income Down

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Personal Income, Spending, PCE Inflation “Unexpectedly Weak”: Real Income and Spending Decline

The BEA reports “Real DPI decreased 0.1 percent in August and Real PCE decreased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.”

Treasury Yields and Rate Hike Odds Sink: Investigating the Yield Curve

The futures market is starting to question the June rate hike thesis. For its part, the bond market is behaving as if the Fed is hiking the economy into a recession. Here are some pictures.

Real Income, Real PCE Rise 0.2 Percent in July: PCE Inflation 0.1 Percent

The Personal Income and Outlays Report from the BEA shows “Real DPI increased 0.2 percent in July and Real PCE increased 0.2 percent.”

Personal Income Flat in June, May Revised Lower: PCE Inflation Down Again

Those expecting the relatively strong second-quarter consumer spending to continue in the third quarter may wish to reconsider.

Rate Hike Odds 99 Percent for June: Then What? Fed Hike Cycle Over?

CME Fedwatch places a 99.6% possibility of a quarter point rate hike on June 14.

CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned

The CPI came in exactly in line with the Bloomberg Consensus option today.