U.S. consumer spending saw a modest increase in October that surpassed expectations and indicated that the economy had maintained a significant growth momentum at the beginning of the fourth quarter. However, the efforts to reduce inflation have become stagnant in recent months.
The challenges in achieving the 2% inflation target of The Federal Reserve along with the potential to increase tariffs on imports under the upcoming Trump administration might limit the possibilities of reduction of interest rates by the U.S central bank in the upcoming year.
The Federal Reserve is still expected to implement a third rate cut in December as additional data released data on Wednesday pointed towards a rise in the number of individuals who are dealing with prolonged unemployment in mid-November.
The Fed’s policy meeting held on the 6th and 7th of November had some minutes published on Tuesday that indicated a clear division among officials regarding the extent to further cut rates that may be required.
Chief economist at Nationwide, Kathy Bostjancic in her statement stated that “The decision is more contentious than it was during the previous two meetings, given that core services inflation remains persistent, which may lead some Fed officials to advocate for a pause in the rate-cutting cycle next month.”
She further added that a pause in rate cuts is expected in early 2025 to evaluate potential policy adjustments under the second Trump administration.
According to the Commerce Department’s Bureau of Economic Analysis, consumer spending which is over two-thirds of the U.S. economic activity increased by 0.4% last month following 0.6% growth in September. Reuters also surveyed economists who expected a 0.3% gain in consumer spending after it was a 0.5% increase in September was reported.
When consumer spending was adjusted for inflation, it saw a slight increase of 0.1% aligning with an approximate growth rate of 2.5% for the quarter.
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