US Consumption Does Not Rise, The Fed May Raise Interest Rates Again Next Week, WASHINGTON — United States (US) consumption spending will not change in March 2023. Inflationary pressures that occur can make The Federal Reserve raise interest rates next week. This was the impact of increased labor costs in the first quarter which pushed up wages in the private sector.

“Anticipated hike in interest rates next Wednesday could be the fastest since the 1980s,” said Bill Adams, chief economist at Comerica Bank. Reuters on Saturday (29/4/2023).

Bill said tighter credit conditions following the recent financial market turmoil had added to the risk of a recession in 2023. The struggle to raise the federal government’s $31.4 trillion borrowing limit also poses a threat to the economy.

“The Fed is in a difficult position. The economy is cooling, but inflation is still too high. One component of inflation that the Fed is worried about is the labor-intensive sector,” said Bill.

Bill said the stagnation in consumer spending, which was unchanged from last month, was also reported by the US Department of Commerce. Consumer spending alone accounted for more than two-thirds of US economic activity which was previously reported to have risen only 0.2 percent in February.

Bill said spending on services rose 0.4 percent driven by housing and utilities as well as health care. Goods spending fell 0.6 percent as purchases of motor vehicles, mostly new light trucks, declined.

“Lower gasoline prices also contributed to a drop in goods spending. Economists surveyed by Reuters expects consumer spending to fall 0.1 percent,” Bill continued.

The data was included in the preliminary GDP report for the first quarter which showed consumer spending surging at an annualized rate of 3.7 percent. Previously it was rising at a 1.0 percent pace in the October-December 2022 quarter.

Consumer spending is likely to increase as US citizens become more averse to higher prices. Government social assistance is also reduced. The temporary boost to the benefits of the Supplemental Nutrition Assistance Program (SNAP) passed by the US Congress to protect low-income people and their families from the hardships of the COVID-19 pandemic ended in March.

SNAPs are commonly known as food stamps. Researchers from the Department of Commerce’s Census Bureau estimate the end of co-benefits has resulted in about 32 million people getting smaller monthly SNAP payments. They estimate that a household of four with a monthly net income of US$2,000 now earns US$600 less of food stamps each month.

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