Stocks, dollar gain on allure of Fed soft landing

World stocks rallied and the dollar edged up from eight-month lows on Friday as slowing inflation data raised hopes the Federal Reserve can engineer an economic soft landing and reduce its pace of aggressive monetary tightening next week.

US consumer spending fell for a second straight month in December, a Commerce Department report said, which also showed the smallest gain in personal income in eight months that partly reflected moderate wage growth - booth good signs for inflation.

MSCI’s gauge of stock performance in 47 countries (.MIWD00000PUS) gained 0.31%, after the index earlier hit fresh five-month highs, while the dollar index rose 0.187%, reported Reuters.

“Equities have concluded the Fed really knows what they’re doing, that they’ve shepherded the economy pretty well so far and really have a shot at a soft landing,” said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management in Boston.

“But what they have paid less attention to is growth and the growth picture is going to be scary this year. It’s going to be low for good reason,” Mullarkey said, referring to the Fed’s pushing rates to “restrictive” levels to curb inflation.

A 5.0% annualized increase in the personal consumption expenditures (PCE) price index, the smallest gain since September 2021 in the Fed’s preferred measure of inflation, indicated progress, said Russell Price, senior economist at Ameriprise Financial, Troy, Michigan.