(Reuters) – U.S. consumer spending slowed sharply in May, but persistently strong underlying inflation pressures could compel the Federal Reserve to resume raising interest rates next month.

The personal consumption expenditures (PCE) price index gained 0.1% in May after rising 0.4% in April, data from the Commerce Department showed Friday. In the 12 months through May, the PCE price index advanced 3.8% after climbing 4.3% in April.

Excluding the volatile food and energy components, the PCE price index gained 0.3% after rising 0.4% in the prior month. The so-called core PCE price index increased 4.6% on a year-on-year basis in May after advancing 4.7% in April. The Fed tracks the PCE price indexes for its 2% inflation target.

MARKET REACTION:

STOCKS: S&P 500 futures extended gains and were recently up 0.7%

BONDS: The yield on 10-year Treasury notes fell to around 3.84%; The two-year U.S. Treasury yield was at 4.85%

FOREX: The U.S. dollar index edged lower and was recently at 102.99

COMMENTS:

GENNADIY GOLDBERG, HEAD, U.S. RATES STRATEGY, TD SECURITIES, NEW YORK

“It’s very hard for the market to actually understand exactly which data points to look at, but looking at the price data, which I think is the most important one of this series, you’re seeing core PCE come in on the weaker side, especially core core, which is a core services ex housing, is coming in weaker as well.

“It’s just a question of how low does the Fed want it to go, and when they’re comfortable, either stopping rate hikes or how long they’re comfortable waiting in order to assess the next hike.

“I do suspect that this print may pour a little bit of cold water on some of the bearish expectations recently in rates.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“Spending was weak, especially in inflation adjusted terms. Goods spending fell and even services spending looks to be sputtering. Inflation is drifting lower. The off-ramp to 2% inflation is a long one, though.”

PETER ANDERSEN, FOUNDER, ANDERSEN CAPITAL MANAGEMENT, BOSTON

“It’s showing hints of stability and that we’re headed in the right direction.”

“As we close out this quarter and turn to the second half, I’m optimistic that the economy and the consumer are in good shape and will continue to recover.”

“While this number comes in line with expectations, I don’t expect it to change the general tone that the Fed has communicated to us over the past month or so.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT

“The figures were pretty much in line as far as the inflation reports were concerned. That’s a good sign. Inflation has been trending a little bit lower and that’s helped lift the overall stock market.”    “People are feeling a little bit more comfortable if you take a look at the sentiment index and consumer confidence and things like that. The views are not as negative, and the market seems to like this because futures got a little bit of a pop on the report.”    “It takes a little bit of pressure off the Fed, but the way that Powell had spoken this week, you kind of wonder whether or not they’re willing to accept it. He has to sort of talk tough in order to jawbone the market and keep it from rolling to the point where interest rates go lower in the treasury market and it works against what he’s trying to do.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“We got some good news, its nice progress. These are good numbers and shows there’s some progress on the inflation side.”

“Will this satisfy the Fed? They’ve been hawkish and Powell has been hinting at two more hikes. But if we see a weaker-than-expected (June) labor number next week and a lower CPI there’s a good chance the Fed might hold in July, take another skip month to further assess economic activity.”

“Spending came in weaker than expected. We’re starting to see consumption wane a bit and that’s critical for bringing down inflation.”

“(Treasury) yields are now on the soft side, and we should close the quarter on a strong note.  It looks as though we’re headed for a positive trading session.”

(Compiled by the Global Finance & Markets Breaking News team)

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