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Market Wire: US Inflation Pressures Strengthen, Supporting Fed’s Hawkish Stance

American households kept spending last month and the Federal Reserve’s preferred inflation measure climbed by more than expected, lifting odds on more aggressive tightening from the world’s most powerful central bank.

Data released by the Bureau of Economic Analysis this morning showed inflation-adjusted household outlays climbing 0.1 percent in August. A -0.489-percent drop in spending on goods was offset by a 0.849-percent increase on the services side, suggesting that falling gas prices are helping boost spending in other areas of the economy.

In unadjusted terms, personal income rose 0.3 percent month-over-month, led by another solid 0.3 percent increase in private-sector wages and salaries.

The core personal consumption expenditures index – targeted by the Federal Reserve – rose 0.6 percent from July, up 4.9 percent year over year – much stronger than consensus estimates which were set at 0.3 percent and 4.7 percent, respectively.

Yields climbed and the greenback jumped after the release, but reaction was relatively muted after Jerome Powell — basing his estimates on previously-reported consumer and producer price numbers — implied he expected a print close to 4.8 percent in last week’s press conference.

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