US inflation opens door to March Fed rate cut

By Craig Erlam  

Inflation, income and spending data for the US was released on Friday and broadly speaking the numbers were in line with expectations, with one outlier.

Spending last month increased 0.7%, comfortably exceeding the 0.5% that was expected. It also came on top of the upward revision to the November reading, which increased to 0.4% from 0.2% previously.

All things considered, it’s another sign that the US consumer and economy are in very healthy shape going into the new year.

That it was released alongside inflation data – the Fed’s preferred PCE reading – will be additionally comforting for investors, as it suggests it’s not coming at the expense of inflationary pressures heating up again.

They’re now running at a rate much more consistent with the Fed’s 2% target, especially over the last few months. A March rate cut still looks like a very real possibility.

Oil steadies after 2-month high

Oil prices were trading flat on Friday after hitting a two-month high a day earlier.

The move back above $80 in Brent crude which had been a struggle over the last month or so could be viewed as a big psychological move, particularly amid the risks in the Middle East and better economic figures from the US.

That said, prices are still not high and certainly not high enough to stoke inflationary concerns at this stage.

Gold still above $2,000

Gold prices were slightly lower on the last day of the week, but still comfortably above $2,000 where it has held, even as doubts surfaced on the scale of easing this year.

Friday’s data in theory aids the case for cutting rates in March and much more this year, but prices are steady with spending figures perhaps preventing people getting carried away.

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Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.