Rising Consumer Optimism And Residential Resales Boost Pressure for Fed Hike

Bloomberg News

WASHINGTON - The latest data on home resales and consumer expectations for the next six months suggest the Federal Reserve is likely to keep raising interest rates.

Fed policymakers have raised the overnight bank lending rate five times since June and "are anxious to see some evidence their rate hikes are having some impact," said Greg Jones, an economist at Briefing.com, in Jackson, Wyoming. "So far they aren't seeing any," boosting their concerns that inflation will accelerate.

A Conference Board said Tuesday that its index of consumer expectations for the next six months rose to 108.2 in April, from a five-month low of 106.8 in March. It was the first increase since January.

The overall confidence index dipped slightly, however, to 136.9 from a revised 137.1 in March. The all-time high was January's 144.7.

Home resales rose 1.5% last month, to an annual rate of 4.83 million, the National Association of Realtors said Tuesday. In February, resales rose 7% to a 4.76 million pace.

Fed policymakers have repeatedly said consumer demand is outpacing the economy's ability to supply goods and services and that could cause inflation to accelerate.

That is why they have raised the overnight bank rate to 6% - the highest in five years - from 4.75% last June.

Central bankers meet again May 16, when they're expected to raise the overnight rate another quarter percentage point.

The U.S. economic expansion entered its 10th year in April, fueled by consumer spending. Retail sales rose 11% in the first three months of 2000 from a year earlier.

"People are now saving close to zero, and spending virtually everything," Robert McTeer, president of the Federal Reserve Bank of Dallas, said last week.

March's pace of home resales was the strongest since December, and the increase was the second in two months. Analysts had expected a 0.2% decline, to a 4.74 million rate.

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