Fed likely to keep rates steady; investors bet on June hike

Fed likely to keep rates steady; investors bet on June hike”

The greenback had risen 2 percent in April for its biggest monthly gain since November 2016 after the US 10-year Treasury yield climbed above the psychologically significant 3.0 percent threshold to four-year highs last week.

US consumer prices accelerated in the year to March, with a measure of underlying inflation surging to near the Federal Reserve's 2 percent target.

Rising price pressures are encouraging the USA central bank to press ahead.

The 12-month increase in the more closely followed core rate of inflation was close behind, rising to 1.9% in March from 1.6% in the prior month. Some officials say the central bank let inflation rise for a time above that target.

Minutes of the Fed's March 20-21 policy meeting published this month showed officials expected the annual PCE price indexes to accelerate in March partly because of "the arithmetic effect of the soft readings on inflation in early 2017 dropping out of the calculation".

Benchmark 10-year notes last fell 10/32 in price to yield 2.9718 percent, from 2.936 percent late on Monday.

The Fed's preferred measure of inflation soared 1.9 percent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 percent in the year through February, the U.S. Commerce Department reported. It's yield, the rate of return one gets for investing in the note, is used to set interest rates for many forms of consumer and business long-term debt, such as mortgages, auto loans and the financing of machinery and equipment.

US stock futures were barely budged ahead of the NY open.

Sterling tumbled further, hitting a low of US$1.3715, as the U.S. dollar gained and investors further trimmed expectations that the Bank of England would raise rates next month following weak first-quarter GDP data published last week.

Spending rose 0.4 percent in March, following a flat February and a 0.2 percent increase in January.

Events and data coming up this week include the U.S. Federal Reserve's May 1-2 policy meeting, at which the central bank is expected to keep rates unchanged, as well as data due on Friday. The rebound in real consumer spending last month supports expectations that consumption was held back by temporary factors and will gain steam in the second quarter.

The faster rise in spending compared to income growth meant that the saving rate slipped to 3.1 percent of after-tax income in March, down from 3.3 percent in February.

The inflation figures are included in the government's monthly report on consumer spending.

Big picture: The U.S. economy is growing soundly almost nine years into an economic expansion, but it was inevitable that such a long period of growth would eventually trigger higher inflation. There were also increases in purchases of recreational goods.

Personal incomes advanced a moderate 0.3 percent in March, matching the February gain.

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