Bond Prices Slump After U.S. Reports Strong 0.9% Rise in Consumer Spending
NEW YORK -- Bond prices slumped yesterday after the government reported an unexpectedly strong 0.9% increase in consumer spending last month.</br></br>The spending surge startled many analysts who had assumed that the economy's apparent sluggishness would prompt the Federal Reserve System to drive interest rates lower soon. Now, some economists say the Fed will conclude that the economy doesn't need any additional stimulus and will leave its credit policy unchanged in coming weeks.</br></br>Some actively traded U.S. Treasury bonds fell about a point, or around $10 for each $1,000 face amount. Nevertheless, prices on these issues still are more than 2 1/2 points higher than they were at the beginning of last week.</br></br>The Fed yesterday afternoon reported another surprisingly large increase in the nation's money supply. But the report didn't have much impact on bond prices because many traders assume that the Fed is paying little or no attention to M1 in setting policy. The M1 measure soared $3.7 billion in the week ended June 9, leaving it far above the Fed's target of 3% to 8% growth this year.</br></br>"The big event of the day was the surprising increase in personal consumption expenditures" last month, said Edward Yardeni, chief economist at Prudential-Bache Securities Inc. The report "totally blew away the notion that the consumer is cutting back and stopping spending."