Inflation Measure Suggests Small Interest Rate Rise

In a month's time, the U.S. Federal Reserve System's Federal Open Market Committee (FOMC) will be sitting down to talk about again raising the influential federal funds target rate. Chances are the FOMC, chaired by Alan Greenspan, will raise the target rate by another 25 basis points to 3.25% and not by a larger amount.

Data released by the U.S. Commerce Department just as the Memorial Day weekend began showed the Fed's favorite measure of inflation -- the year-to-year change in personal consumption expenditures (PCE) not counting food and fuel -- increased a modest and acceptable 1.6% in April. "This is well within sight of the Fed's implicit target of 1.5% for this inflation gauge," noted Merrill Lynch & Co., New York.

The economic data Commerce released on May 27 also showed that personal income in the U.S. increased seven-tenths of a percentage point in April, a tenth-point higher than economists generally expected, while consumer outlays rose six-tenths of a percent, two-tenths of a percentage point less than generally anticipated.

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