U.S. consumer spending jumped to its biggest gain in 9-1/2 years in March though inflation pressures remained muted, keeping the economy in what one expert called a “sweet spot.”

The Commerce Department said Monday that spending rose 0.9% last month as consumers stepped up motor vehicle purchases. Economists polled by Reuters had forecast a 0.7% increase.

The March surge followed a slow start to the year, with spending rising a revised 0.3% in January and 0.1% in February. The government’s release of the February data was delayed by the partial shutdown that ended on Jan. 25.

Inflation, meanwhile, was tame last month, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components — the Federal Reserve’s preferred measure — unchanged after edging up 0.1 percent in February.

Year to year, the core PCE index was up 1.6%, the smallest increase since January 2018 and well below the Fed’s 2% target for inflation.

According to Reuters, the March spending report “allayed concerns about the economy’s health, which had been brought to the fore by a temporary inversion of the U.S. Treasury yield curve last month. Tame inflation, however, supported the Federal Reserve’s recent decision to suspend further interest rate increases this year.”

“The economy is in a sweet spot for now with not enough inflation to cause the Fed to raise rates, and with inflation not low enough to worry Fed officials that economic demand is weakening, which could require rate cuts,” said Chris Rupkey, chief economist at MUFG in New York.

White House economic adviser Larry Kudlow even suggested on Monday that slowing inflation opened the door for possible rate cuts. But Jesse Edgerton, an economist at JPMorgan in New York, said it was “unlikely that the Fed would be prompted into rate cuts by weak inflation readings alone.”

For the first quarter, consumer spending increased at a 1.2% annualized rate. The overall economy grew at a 3.2% rate.

“The pickup in spending in March adds to the sense that the economy will remain solid in the second quarter,” MarketWatch said.

Image: Getty

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