Economic Angst Grows as Inflation Bites in USEconomicAngstGrowsasInflationBitesinUS

Trepidation over the economic outlook appears to be growing among US consumers and businesses, as stubborn inflation and a strong labor market keep pressure on the Federal Reserve to delay rate cuts. Americans’ view of current economic conditions improved in May, but they maintained a cautious outlook amid expectations that inflation will remain elevated, according to a Conference Board survey on Tuesday. Likewise, the Fed’s Beige Book noted on Wednesday that “overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.” Consumers “pushed back against additional price increases” in recent weeks, exhibiting heightened price sensitivity and weaker discretionary spending, the Fed said. Some of the central bank’s districts reported a pullback in hiring plans, saying businesses were reluctant to expand due to the uncertain environment.

As its June policy meeting draws near, the Fed is tasked with balancing US resilience against global crosscurrents and potential speedbumps emerging at home. Neel Kashkari, the Minneapolis Fed President, said policymakers have not ruled out the possibility of further rate hikes if inflation persists. “I think the odds of us raising rates are quite low, but I don’t want to take anything off the table,” Kashkari added. The Fed will get another window into the state of US inflation with the release on Friday of its favorite price gauge: the personal consumption expenditures (PCE) price index. Economists have forecast that PCE inflation did not change in April compared with the month before, when it was up 2.7% year-over-year, or 2.8% when excluding food and energy costs. As central banks seek to tame inflation, a webinar from PGIM Fixed Income explores the opportunities that exist for investors to move out of cash investments and into fixed income.