Consumer spending in the United States is rising at a faster-than-expected pace in recent months, according to the latest Personal Consumption Expenditures (PCE) index. The core PCE rose to 4.7% year-over-year in January, up from 4.6% in December and higher than economists anticipated.
The jump in consumer spending comes as the Federal Reserve is nearing its upper limit of peak rate hikes, which it originally set at 5.1%. This suggests that inflationary pressures are proving stickier than previously thought, further complicating the central bank’s job of balancing economic growth with price stability .
The stronger-than-expected consumer spending numbers come on top of last month’s unexpectedly robust jobs growth figures, indicating that demand may be greater than analysts had predicted and that inflation is unlikely to be tamed soon. This data will likely push the Fed towards a more hawkish stance when it meets for its next Federal Open Market Committee (FOMC) meeting in March, with some speculating the committee could consider a 50 basis point rate hike next month.
As the Fed approaches its peak rate hike levels and inflation remains elevated, it looks increasingly likely that policy makers will maintain heightened rates for a longer period of time than initially planned. This could have profound implications for both businesses and consumers alike as they adjust to rising costs of living and fluctuating interest rates.
This will weigh on cryptocurrency markets, as they contend with a stronger US Dollar for longer. At the time of writing, with Bitcoin tackling a range of resistance between $25,000 and $30,000; a hawkish Fed could lead to prolonged sideways and choppy price action between $20,000 and $25,000 through the coming weeks.
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