Price Cuts, Weaker Spending May Boost Fed's Faith in Inflation Outlook

• A new round of price cuts by major U.S. retailers and data showing a consumer spending slowdown may boost the Federal Reserve's confidence in falling inflation and take the edge off corporate profits that have grabbed a larger share of national income since the start of the COVID-19 pandemic.
• The Commerce Department reported on Thursday that the U.S. economy grew more slowly than initially thought, expanding at a 1.3% annual rate over the first three months of the year versus an initial estimate of 1.6%.
• Much of the change came from a lowered pace of consumer spending, indicating a core prop of the economy may be slowing in line with Fed officials' expectations. Fresh inflation data will be released on Friday, with economists polled by Reuters expecting the personal consumption expenditures price index to have risen at a 2.7% annual rate in April, matching the gain in March.
• Fed officials have said they feel consumers are in broadly good shape with unemployment low and wages rising. But they've also noted signs of stress among lower-income households, including rising loan default rates and credit card borrowing.
• The price cuts announced this month may show that same sense taking hold in corporate executive suites and touching off the dynamic Fed policymakers expected would eventually take hold: A fight for market share as pandemic-era pricing power wanes, along with the elevated profits that followed it.
• Fed officials in recent weeks have said they think the landscape has shifted, with businesses generally saying their capacity to raise prices is diminished compared to the last two years. In the Fed's most recent "Beige Book" collection of anecdotes about the economy, there was a widespread sense of consumers becoming more selective and putting pressure on firms.

(Source: Reuters)