The US economic engine is running too hot

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The recent surge in the US economy indicates that the neutral rate may be higher than the current Fed policy suggests, especially after nominal spending significantly surpassed expectations in this week's primary release from the world's largest economy. The headline figure of 0.7% far exceeded the consensus estimate of 0.4%. Moreover, March marked the second consecutive month of MoM gains, with the previous month's increase revised substantially upward to reflect a 0.9% rise. Furthermore, the control group witnessed a remarkable 1.1% increase, nearly quadrupling the expected gain. This robust performance is poised to strengthen Q1 GDP estimates before next week's forthcoming advance read on overall economic growth. Notably, February's control group reading was also revised upward to reflect a 0.3% gain, contrary to the initially reported flat figure. Taken together with the overshoots on both payrolls and CPI for March, this release underscores the resilience of US consumers in the face of higher interest rates. It suggests that the Fed's policy stance may not be as restrictive as previously thought. And strongly hinting that the Federal Reserve will neither be inclined nor warranted to hasten rate cuts. In summary, the US economy is firing on all cylinders. Needless to say, this is not the stuff of rate cuts, and the market reacted accordingly with higher yields and lower stocks.

#UsEconomy #InterestRates #Gdp #FederalReserve

https://www.fxstreet.com/analysis/the-us-economic-engine-is-running-too-hot-202404152244