- Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC
Consumer spending is still boosting the growth in the world's largest economy. Earlier a report from the Commerce Department said that the U.S. GDP expanded 2.6% in the three months through December, more than the 2.4% reported earlier; however, weaker than the 2.7% growth predicted by analysts. A report also unveiled that Americans were still willing to spend on services, especially health care, boosting the growth further, another sign that earlier slowdown was mostly provoked by a heavy snowfall and low temperatures. Friday's report from the Bureau of Economic Analysis only confirmed the previous data by saying Americans spend 0.3% more in February than a month earlier, with spending accelerating from January's 0.2% gain, meeting analysts' expectations. Consumer purchases accounts for around 70% of overall economic activity.
Also Friday a report showed the price index for PCE advanced 0.9% on a yearly basis to February, hitting the weakest price growth since October. This indicator is the headline gauge of inflation for the central bank. With hawkish comments from Janet Yellen and stable inflation, policymakers appear to have brushed away risks of deflation. In contrast, the Fed is still facing a dilemma, as a rate hike will add additional pressure on inflation, and the PCE index will not be able to hit the projected 1.5%-1.6% by the end of this year.
© Dukascopy Bank SA