While the Consumer Price Index (CPI), a key inflation measure, posted a significant drop in March – falling by a full percentage point to 5.0% – it remains well above the Fed’s target rate of 2%, impelling its latest decision to hike rates again.
The US labor market is also proving more resilient than expected despite a slowdown in economic growth to an annual pace of 1.1% between January and March.
Consumer spending rose at a rate of 3.7% during that period, its fastest pace for nearly two years, with spending on goods seeing particular strength.
Wage and salary growth also remains robust across the US, with both registering only a small cooldown in the first quarter of 2023 – from 5.3% to 5.0% compared with the same time last year.
At its last announcement, the Fed moderated its expected approach by introducing a 25-basis-point jump rather than the anticipated half-point hike, although it clearly was not ready to hold fire on further increases in its May decision.
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